La_India_PEA_43-101_6Dec2010

Resource Geosciences de M Mexico SA de CV V

6 De ecember 2010 Pre eliminary Econom Asses y mic ssment, L India G La Gold Pro oject, Mu unicipio o Sahuar of ripa, Sono ora, Mexi ico Prepare for Gra Resou ed ayd urce Corp porationby Mat tthew D. Gr ray, Ph.D., C.P.G. #10 0688 Resou urce Geosci iences de M Mexico SA de CV

and Gary H. Giroux, P. Eng., Girou Consulta ux ants Ltd. Jam H Gray P. Eng., M mes y, Moose Mou untain Tech hnical Servi ices Mark E Smith, P.E.., RRD In E. nternationa Corp. al .6 D December 20 010

Diamond core drilling a La Viruela, Ma Zone, La Ind project, 2010 (photo by Cru Paez). at ain dia 0 uz

Resource Geosciences de Mexico SA de CV 6 December 2010 Preliminary Economic Assessment, La India Gold Prospect, Municipio of Sahuaripa, Sonora, _________________________________________________________________________________________________

Table of Contents Item 1 2 3 Page Title Page... cover Table of Contents, Table of Figures, List of Tables.. i Executive Summary ....................................................................................................................... 1 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 Introduction............................................................................................................................ 1 Location, Mining Concessions, Surface Rights, Permits ...................................................... 2 Exploration and Mining History ............................................................................................. 3 Geology and Mineralization................................................................................................... 4 Drilling and Sampling ............................................................................................................ 4 Metallurgical Testing ............................................................................................................. 5 Mineral Resource Estimation ................................................................................................ 6 Mining .................................................................................................................................. 12 Processing........................................................................................................................... 17 Process Operating Costs .................................................................................................... 21 Gold Production................................................................................................................... 22 Infrastructure and Construction ........................................................................................... 23 Environmental and Permitting ............................................................................................. 23

3.14 Economic Analysis .............................................................................................................. 24 3.14.1 Assumptions, Economic Criteria, and Inputs............................................................. 24 3.14.2 Taxes .......................................................................................................................... 26 3.14.3 Income Tax and Single Rate Business Tax or Flat Tax ............................................. 26 3.14.4 Value Added Tax ........................................................................................................ 26 3.14.5 Cash Flow ................................................................................................................... 27 3.14.6 Cash Flow Analysis and Economic Performance ...................................................... 29 3.15 3.16 4 Conclusions ......................................................................................................................... 30 Recommendations .............................................................................................................. 32

Introduction and Terms of Reference .......................................................................................... 35 4.1 4.2 4.3 4.4 4.5 4.6 Introduction.......................................................................................................................... 35 Terms of Reference ............................................................................................................ 39 Purpose of Report ............................................................................................................... 39 Sources of Information ........................................................................................................ 40 Field Examination and Data Review by the Qualified Person. ........................................... 40 Definitions and Translations ................................................................................................ 41

5 6

Reliance on Other Experts ........................................................................................................... 43 Property Description and Location............................................................................................... 44

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6.1 6.2

Area and Location ............................................................................................................... 44 Claims and Title................................................................................................................... 46

6.3 Surface Rights ..................................................................................................................... 53 6.3.1 Ejido Lands ..................................................................................................................... 56 6.3.1.1 Matarachi Ejido....................................................................................................... 56 6.3.2 Private Lands .................................................................................................................. 56 6.3.2.1 Rancho Bronces y Bajios (aka La Cieneguita) ...................................................... 56 6.3.2.2 Rancho La Amargosa ............................................................................................ 57 6.3.2.3 Rancho El Duraznito .............................................................................................. 57 6.3.2.4 Rancho Ostimuri y Las Mesas ............................................................................... 57 6.4 6.5 6.6 Mineralization ...................................................................................................................... 57 Environmental Liability ........................................................................................................ 58 Permits ................................................................................................................................ 58

6.7 Water Rights and Water Supply .......................................................................................... 61 6.7.1 Surface Water Rights ...................................................................................................... 61 6.7.2 Subsurface Water Rights ................................................................................................ 61 6.7.3 Project Water Rights ....................................................................................................... 62 6.7.3.1 Surface Water Rights ............................................................................................. 62 6.7.3.2 Subsurface Water Rights ....................................................................................... 62 7 8 9 Access, Climate, Infrastructure, and Physiography ..................................................................... 63 History .......................................................................................................................................... 64 Geological Setting ........................................................................................................................ 66 9.1 9.2 10 11 Regional Geology ................................................................................................................ 66 Local Geology ..................................................................................................................... 68

Deposit Types .............................................................................................................................. 77 Mineralization ............................................................................................................................... 79 11.1 11.2 11.3 11.4 11.5 General................................................................................................................................ 79 North Zone, comprising Cieneguita, Espaola, Cochis, La India areas ............................. 79 Main Zone, comprising La Viruela, La Cruz, and Cerro de Oro .......................................... 83 Tarachi ................................................................................................................................ 88 Construction of Oretype Domain/Resource Model ............................................................. 90

12

Exploration ................................................................................................................................... 92 12.1 Geologic Mapping and Geochemical/Mineralogical Sampling............................................ 92 12.2 Airborne Electromagnetic and Magnetic Survey. ................................................................ 93 12.2.1 Procedure ................................................................................................................... 93 12.2.2 Results ........................................................................................................................ 93 12.3 Induced Polarization Survey. .............................................................................................. 97 12.3.1 Procedure ................................................................................................................... 97 12.4 12.5 Ground Magnetic Survey 2009 ........................................................................................ 99 Ground Magnetic Survey - 2010 ........................................................................................ 99

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12.5.1 12.5.2 12.5.3

La India Grid ............................................................................................................. 100 Tarachi Grid .............................................................................................................. 100 Tubos ........................................................................................................................ 100

12.6 Ground IP Survey 2010.................................................................................................. 100 12.6.1 La India Grid ............................................................................................................. 100 12.6.2 Tarachi ...................................................................................................................... 101 12.6.3 Tubos Grid ................................................................................................................ 101 12.7 13 Photogrammetric Survey/Topographic Mapping............................................................... 101

Drilling ........................................................................................................................................ 102 13.1 13.2 13.3 13.4 13.5 2004 Diamond Drilling ....................................................................................................... 102 2005 through January 2010 Reverse Circulation Drilling ................................................. 102 2007 and 2008 Diamond Core Drilling .............................................................................. 107 2009 Diamond Core Drilling .............................................................................................. 107 2010 Tarachi Drilling ......................................................................................................... 107

14

Sampling Method and Approach ............................................................................................... 109 14.1 Sampling Method, Nature, and Spacing ........................................................................... 109 14.1.1 Surface Rock Chip Samples..................................................................................... 109 14.1.2 Diamond Drill Core Samples .................................................................................... 109 14.1.3 Reverse Circulation Drill Samples ............................................................................ 110 14.2 14.3 14.4 Recovery Factors .............................................................................................................. 110 Sample Quality and Representativity ................................................................................ 111 Sample Interval Parameters .............................................................................................. 112

15

Sample Preparation, Analyses, and Security ............................................................................ 113 15.1 Personnel .......................................................................................................................... 113 15.2 Grayd Resource Sampling Program ................................................................................. 113 15.2.1 Sample Security/Chain of Custody........................................................................... 113 15.2.2 Sample Preparation by ALS Chemex....................................................................... 113 15.2.3 Analytical Techniques used by ALS Chemex........................................................... 113

16

Data Verification ......................................................................................................................... 116 16.1 16.2 Prior Campaigns................................................................................................................ 116 2010 Tarachi Exploration Drill Program ............................................................................ 116

16.3 Grayd Resources Exploration Campaign, 2004 to 22 January 2010, Resource Area. .... 116 16.3.1 General ..................................................................................................................... 116 16.3.2 Mapping .................................................................................................................... 116 16.3.3 Assays ...................................................................................................................... 117 16.3.3.1 Blanks .............................................................................................................. 118 16.3.3.2 Standards......................................................................................................... 122 16.3.3.3 Field Duplicates Rig Splits ............................................................................ 127 16.3.3.4 Sample Preparation Duplicates Coarse Reject ............................................ 129 16.3.3.5 Lab Duplicates Pulps .................................................................................... 130 16.3.3.6 Metallic (Screen) Fire Assays .......................................................................... 131 16.3.3.7 Check Assays .................................................................................................. 132 16.3.3.8 Reverse Circulation Diamond Core Drillhole Twins...................................... 134

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16.3.3.9 Person 17 18

Independent Verification of Database and Independent Sampling by Qualified 149

Adjacent Properties.................................................................................................................... 151 Metallurgical Testing .................................................................................................................. 153 18.1 18.2 18.3 18.4 18.5 18.6 18.7 18.8 18.9 18.10 General.............................................................................................................................. 153 Sample Composites Tested .............................................................................................. 153 Sample Preparation .......................................................................................................... 155 Rock Density Test Work .................................................................................................... 155 Bond Work Index Test Work ............................................................................................. 155 Head Analyses .................................................................................................................. 155 Bottle Roll Leach Test Work.............................................................................................. 156 Gravity Concentration Test Work ...................................................................................... 156 Agglomeration and Percolation Test Work ....................................................................... 156 Laboratory Column Leach Test Work ........................................................................... 157

18.11 Metallurgical Test Results ............................................................................................. 157 18.11.1 Rock Density Test Work ........................................................................................... 157 18.11.2 Bond Work Index Test Work..................................................................................... 157 18.11.3 Bottle Roll Leach Test Work ..................................................................................... 158 18.11.4 Laboratory Column Leach Test Work....................................................................... 158 19 Mineral Resource Estimate ........................................................................................................ 162 19.1 19.2 Introduction........................................................................................................................ 162 Assay Sample Weights and Core Recovery ..................................................................... 162

19.3 Data Analysis .................................................................................................................... 165 19.3.1 Main Zone ................................................................................................................. 165 19.3.2 North Zone ................................................................................................................ 167 19.4 19.5 19.6 Fire Assay versus Screen Analysis ................................................................................... 168 Core versus RC Drill Results ............................................................................................ 169 Composites ....................................................................................................................... 172

19.7 Variography ....................................................................................................................... 172 19.7.1 Main Zone ................................................................................................................. 173 19.7.2 North Zone ................................................................................................................ 174 19.8 19.9 Bulk Density ...................................................................................................................... 176 Block Models ..................................................................................................................... 176

19.10 Grade Interpolation ....................................................................................................... 177 19.10.1 North Zone ................................................................................................................ 177 19.10.2 Main Zone ................................................................................................................. 178 19.11 Classification ................................................................................................................. 181 19.11.1 Introduction ............................................................................................................... 181 19.11.2 Main Zone ................................................................................................................. 183 19.11.3 North Zone ................................................................................................................ 183

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19.12 19.13 19.14 19.15 20 21

Results .......................................................................................................................... 183 Model Verification ......................................................................................................... 191 Economic Pit Limit Analyses ......................................................................................... 192 Detailed Design - Pit Delineated resources .................................................................. 205

Other Relevant Data and Information ........................................................................................ 206 Mining......................................................................................................................................... 207 21.1 Mining Operations ............................................................................................................. 207 21.1.1 Mining Areas and Phases......................................................................................... 207 21.1.2 Detailed Pit Designs ................................................................................................. 210 21.1.3 Mine Layout .............................................................................................................. 212 21.1.4 Mine Production Schedule........................................................................................ 214 21.1.5 Mine Equipment Selection and Fleet Requirements ................................................ 218 21.1.6 Mine Personnel ......................................................................................................... 221 21.2 Mining Costs...................................................................................................................... 223 21.2.1 Mine Capital Estimates ............................................................................................. 223 21.2.2 Mine Operating Cost Estimates ................................................................................ 224 21.3 Mine Life ............................................................................................................................ 225

22

Processing ................................................................................................................................. 228 22.1 Process Description and Design Criteria .......................................................................... 228 22.2 Process Description .......................................................................................................... 230 22.2.1 Primary Crushing ...................................................................................................... 230 22.2.2 Primary Crushed Ore Stockpile ................................................................................ 230 22.2.3 Secondary Crushing and Screening......................................................................... 230 22.2.4 Tertiary Crushing and Screening .............................................................................. 230 22.2.5 Heap Leach Pad ....................................................................................................... 231 22.2.6 Solution Ponds ......................................................................................................... 231 22.2.7 Carbon Adsorption.................................................................................................... 231 22.2.8 Gold Recovery and Refining .................................................................................... 232 22.3 Process Services............................................................................................................... 232 22.3.1 Electrical Power ........................................................................................................ 232 22.3.2 Laboratory ................................................................................................................ 232 22.3.3 Process Design Criteria ............................................................................................ 232 22.4 22.5 Process Operating Costs .................................................................................................. 237 Gold Production................................................................................................................. 242

23

Infrastructure and Overhead ...................................................................................................... 244 23.1 23.2 23.3 23.4 23.5 23.6 23.7 Construction ...................................................................................................................... 244 Access Road ..................................................................................................................... 244 Camp ................................................................................................................................. 244 Office and Warehouse ...................................................................................................... 244 Truckshop.......................................................................................................................... 246 Plant Site ........................................................................................................................... 246 Crusher.............................................................................................................................. 246

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23.8 23.9 23.10 23.11 23.12 23.13 23.14 23.15

ADR Plant Site .................................................................................................................. 246 Laboratory ......................................................................................................................... 246 Pad and Ponds ............................................................................................................. 246 Water Wells ................................................................................................................... 247 6 MW Power Plant ........................................................................................................ 247 Fuel Handling Facility.................................................................................................... 247 Sewage and Waste ....................................................................................................... 247 Security and Fencing .................................................................................................... 247

23.16 General and Administration Cost Estimates ................................................................. 247 23.16.1 Senior Management ................................................................................................. 248 23.16.2 Accounting, Legal and Human Resources ............................................................... 248 23.16.3 Environment and Community Relations ................................................................... 248 23.16.4 Worker Health and Safety and Security ................................................................... 248 23.16.5 Purchasing and Warehouse ..................................................................................... 248 23.16.6 Camp and Logistics .................................................................................................. 248 24 Environmental and Permitting .................................................................................................... 251 24.1 24.2 24.3 24.4 24.5 Environmental Management plans.................................................................................... 251 Surface Water Management ............................................................................................. 251 Groundwater Management ............................................................................................... 251 Air Quality Management.................................................................................................... 252 Wildlife Management ......................................................................................................... 252

24.6 Waste Handling ................................................................................................................. 252 24.6.1 Hazardous Wastes ................................................................................................... 252 24.6.2 Non-hazardous Wastes ............................................................................................ 252 24.6.3 Putrescible (Domestic) Waste Disposal ................................................................... 252 24.6.4 Boneyard Storage..................................................................................................... 252 24.6.5 On-site BioRemediation Cell .................................................................................... 253 24.6.6 Waste Water (Sewage) Disposal ............................................................................. 253 24.7 Reclamation ...................................................................................................................... 253 24.7.1 Soil Handling ............................................................................................................ 254 24.7.2 Camp ........................................................................................................................ 254 24.7.3 Central Operating Area............................................................................................. 254 24.7.4 Mine Pits ................................................................................................................... 254 24.7.5 Mine Waste Dumps .................................................................................................. 255 24.7.6 Roads ....................................................................................................................... 255 24.8 Closure Activities Heap Leach Facilities ........................................................................ 255 24.8.1 Engineering, Modeling & Monitoring Systems.......................................................... 255 24.8.2 Permanent Surface Water Diversion Works............................................................. 255 24.8.3 Permanent Slope Stabilization ................................................................................. 256 24.8.4 Final Engineering & Monitoring Plans ...................................................................... 256 24.8.5 Heap Rinsing & Neutralization ................................................................................. 256 24.8.6 Heap Slope Grooming & Slope Stabilization ............................................................ 256 24.8.7 Topsoil Placement and Revegetation of Heap & Surrounding Areas ...................... 257 24.8.8 Ponds & Pump Stations............................................................................................ 257 24.8.9 Physical & Mobile Equipment ................................................................................... 257 24.8.10 Roads, Diversion Works & Erosion Controls ............................................................ 257

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24.8.11

Fencing ..................................................................................................................... 258

24.9 Post-Closure Activities ...................................................................................................... 258 24.9.1 Physical Monitoring & Maintenance ......................................................................... 258 24.9.2 Geochemical Monitoring & Maintenance.................................................................. 258 24.9.3 Biological Monitoring & Maintenance ....................................................................... 259 24.9.4 Surplus Water Management ..................................................................................... 259 24.10 25 Closure Cost Estimates Heap Leach Facilities .......................................................... 259

Economic Analysis ..................................................................................................................... 261 25.1 Assumptions, Economic Criteria, and Inputs .................................................................... 261 25.1.1 Assumptions ............................................................................................................. 261 25.1.2 Production ................................................................................................................ 261 25.1.3 Project Life ................................................................................................................ 261 25.1.4 Revenue ................................................................................................................... 262 25.1.5 Capital Costs ............................................................................................................ 262 25.1.6 Operating Costs ........................................................................................................ 263 25.2 Taxes ................................................................................................................................. 263 25.2.1 Income Tax and Single Rate Business Tax or Flat Tax ........................................... 263 25.2.2 Value Added Tax ...................................................................................................... 264 25.3 Economic Performance ..................................................................................................... 264 25.3.1 Cash Flow ................................................................................................................. 264 25.3.2 Cash Flow Analysis and Economic Performance .................................................... 266 25.3.3 Sensitivity Analysis ................................................................................................... 266

26 27

Interpretations and Conclusions ................................................................................................ 269 Recommendations ..................................................................................................................... 273 27.1 Work Plan and Budget ...................................................................................................... 273 27.2 Opportunities ..................................................................................................................... 274 27.2.1 Equipment Sizing...................................................................................................... 274 27.2.2 Pit Backfilling ............................................................................................................ 274 27.2.3 Sulfide Mineralization ............................................................................................... 274 27.2.4 Increase Resource ................................................................................................... 275 27.2.5 Contract Mining ........................................................................................................ 275 27.2.6 Vendor Financing ..................................................................................................... 275 27.2.7 Improved Recovery .................................................................................................. 275 27.2.8 Reduced Power Costs .............................................................................................. 275 27.2.9 Run-of- Mine Leaching of Low Grade ...................................................................... 276 27.2.10 New Resource Areas................................................................................................ 276

28 29

References ................................................................................................................................. 277 Statement of Qualification .......................................................................................................... 282

List of Figures Item Page Figure 3.1. La India project NPV sensitivity chart................................................................................ 30 Figure 6.1. Location map. .................................................................................................................... 45

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Figure 6.2. Concession map................................................................................................................ 52 Figure 6.3. Surface rights map, resource area, La India project. ....................................................... 54 Figure 6.4. Surface rights map, Tarachi area. ..................................................................................... 55 Figure 9.1. Regional geologic map, summarized from Servicio Geologico Mexicano. ....................... 67 Figure 9.2. Geologic map encompassing the Cieneguita, La Viruela-La Cruz, and Cerro de Oro areas. ........................................................................................................................................... 70 Figure 9.3. Volcanic stratigraphic column of the La India area as determined by T Longo. ............... 71 Figure 9.4. 40Ar/39Ar ages of the lower Cenozoic volcanic rocks from the La India area displayed as a function of stratigraphic position. Two 40Ar/39Ar determinations returned middle Miocene ages from post-mineral supergene alunite. The span of time for the Laramide porphyry event is referenced in the upper right. ....................................................................................................... 72 Figure 9.5. Drillhole fence diagram through Viruela - La Cruz zone. General orientation looking northeast. ..................................................................................................................................... 73 Figure 9.6. Geologic map of Tarachi claims. ....................................................................................... 74 Figure 9.7. Volcanic stratigraphic column, Tarachi area, as determined by T. Longo. ....................... 75 Figure 9.8. Detailed geologic map of the Tarachi area as determined by T. Longo. .......................... 76 Figure 11.1. Section 706,300E, Cieneguita area, North Zone, showing relationships between oretype domains 12, 14 and 18. .................................................................................................. 81 Figure 11.2. Section 3,179,175 Cieneguita area North Zone, showing relationships between oretype domains 11, 12 and 18. ............................................................................................................... 82 Figure 11.3. Section 3,176,600 La Viruela area showing typical morphologies and spatial relationships of Main Zone ore domains 1, 2, and 3. ................................................................... 85 Figure 11.4. Section 3,176,100 La Cruz area showing typical morphologies and spatial relationships of Main Zone ore domains 5 and 6. ............................................................................................. 86 Figure 11.5. Section 3,176,500N Viruela West area showing morphology of Main Zone ore domain 7. ..................................................................................................................................................... 87 Figure 11.6. Diagrammatic sketch of mineralization style at Tarachi (Longo, 2010). ......................... 89 11.7. Geologic map of Tarachi area shoing location and trneds of gold bearing quartz veins as determined by T. Longo. Legend is same as that of Figure 9.8. ................................................ 90 Figure 12.1. Resistivity depth slice at 50m, red is most resistive, blue is least resistive. ................... 95 Figure 12.2. Resistivity depth slice at 100m, red is most resistive, blue is least resistive. ................. 95 Figure 12.3. Resistivity depth slice at 150m, red is most resistive, blue is least resistive. ................. 96 Figure 12.4. Resistivity depth slice at 200m, red is most resistive, blue is least resistive. ................. 96 Figure 12.5. Total field magnetic plot. Red denotes area of greatest magnetic response. ................ 97 Figure 12.6. Induced polarization ground geophysical survey lines (in red). Triple A and La India claim boundaries shown in black. ................................................................................................ 98 Figure 12.7. 2009 Ground magnetic survey data, reduced-to-pole plot. ............................................. 99 Figure 13.1. Map showing all drillhole locations, resource development and exploration, La India project. ....................................................................................................................................... 104 Figure 13.2. North Zone: Location map of diamond and reverse circulation drillholes completed by Grayd Resource, 2004 through 22 January 2010. .................................................................... 105 Figure 13.3. Main Zone: Location map of diamond and reverse circulation drillholes completed by Grayd Resources, 2004 through 22 January 2010.................................................................... 106 Figure 13.4. Drillhole location map, Tarachi area.............................................................................. 108 Figure 16.1. Gold assays, certified blank samples. ........................................................................... 120 Figure 16.2. Gold assays, certified blanks and samples immediately preceding blanks, 2006 through Jan 2010 drill programs. ............................................................................................................ 121 Figure 16.3. ALS Chemex assay results on chart showing certified mean and 2X standard deviation range for standard A, OxF41. .................................................................................................... 123 Figure 16.4. ALS Chemex assay results on chart showing certified mean and 2X standard deviation range for standard B, OxG38. .................................................................................................... 124 Figure 16.5. ALS Chemex assay results on chart showing certified mean and 2X standard deviation range for standard C, OxE42. .................................................................................................... 124 Figure 16.6. ALS Chemex assay results on chart showing certified mean and 2X standard deviation range for standard D, OxD43. .................................................................................................... 125

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Figure 16.7. ALS Chemex assay results on chart showing certified mean and 2X standard deviation range for standard E, OxH52. .................................................................................................... 125 Figure 16.8. ALS Chemex assay results on chart showing certified mean and 2X standard deviation range for standard F, OxC58. .................................................................................................... 126 Figure 16.9. ALS Chemex assay results on chart showing certified mean and 2X standard deviation range for standard G, OxH55. ................................................................................................... 126 Figure 16.10. ALS Chemex assay results on chart showing certified mean and 2X standard deviation range for standard H, OxC752 ................................................................................................... 127 Figure 16.11. Percentile plot absolute relative differences of field, preparation, and lab duplicates.128 Figure 16.12. Percent relative difference Au assay, rig splits. .......................................................... 129 Figure 16.13. Percent relative difference Au assay, coarse reject split. ........................................... 130 Figure 16.14. Percent relative difference Au assay, pulp re-assays. ................................................ 131 Figure 16.15. Plot comparing regular fire assay and screen fire assay analytical results. ............... 132 Figure 16.16. Plot comparing Acme and ALS Chemex fire assay analytical results. ....................... 133 Figure 16.17. Percent relative difference, ACME check assay vs. ALS Chemex assay................... 133 Figure 16.18. Comparison Au assays, twin pair DDH07-28 and RC06-52. ...................................... 134 Figure 16.19. Comparison Au assays, twin pair DDH07-27 and RC06-54. ...................................... 135 Figure 16.20. Comparison Au assays, twin pair DDH08-55 and RC06-73. ...................................... 135 Figure 16.21. Comparison Au assays, twin pair DDH07-19 and RC07-142. .................................... 136 Figure 16.22. Comparison Au assays, twin pair DDH07-13 and RC06-89. ...................................... 136 Figure 16.23. Comparison Au assays, twin pair DDH07-23 and RC06-94. ...................................... 137 Figure 16.24. Comparison Au assays, twin pair DDH07-22 and RC06-69. ...................................... 137 Figure 16.25. Comparison Au assays, twin pair DDH07-12 and RC06-44. ...................................... 138 Figure 16.26. Comparison Au assays, twin pair DDH07-14 and RC07-106. .................................... 138 Figure 16.27. Comparison Au assays, twin pair DDH07-20 and RC07-155. .................................... 139 Figure 16.28. Comparison Au assays, twin pair DDH08-42 and RC06-45. ...................................... 139 Figure 16.29. Comparison Au assays, twin pair DDH07-15 and RC07-161. .................................... 140 Figure 16.30. Comparison Au assays, twin pair DDH08-54 and RC07-145. .................................... 140 Figure 16.31. Comparison Au assays, twin pair DDH07-16 and RC07-147. .................................... 141 Figure 16.32. Comparison Au assays, twin pair DDH07-17 and RC07-148. .................................... 141 Figure 16.33. Comparison Au assays, twin pair DDH07-30 and RC07-113. .................................... 142 Figure 16.34. Comparison Au assays, twin pair DDH07-18 and RC07-117. .................................... 142 Figure 16.35. Comparison Au assays, twin pair DDH08-50 and RC07-119. .................................... 143 Figure 16.36. Comparison Au assays, twin pair DDH07-24 and RC07-131. .................................... 143 Figure 16.37. Comparison Au assays, twin pair DDH07-35 and RC08-98. ...................................... 144 Figure 16.38. Comparison Au assays, twin pair DDH07-37 and RC06-60. ...................................... 144 Figure 16.39. Comparison Au assays, twin pair DDH07-39 and RC07-101. .................................... 145 Figure 16.40. Comparison Au assays, twin pair DDH07-57 and RC07-190. .................................... 145 Figure 16.41. Comparison Au assays, twin pair DDH08-65 and RC07-193. .................................... 146 Figure 16.42. Comparison Au assays, twin pair DDH08-64 and RC07-102. .................................... 146 Figure 16.43. Comparison Au assays, triplet DDH08-58, RC07-103, and RC08-377. ..................... 147 Figure 16.44. Comparison Au assays, twin pair DDH08-62 and RC06-58. ...................................... 147 Figure 16.45. Comparison Au assays, twin pair DDH08-61 and RC08-289. .................................... 148 Figure 16.46. Comparison Au assays, twin pair DDH08-63 and RC08-395. .................................... 148 Figure 17.1. Adjacent exploration properties map............................................................................. 152 Figure 19.1. Histograms of sample weights. ..................................................................................... 163 Figure 19.2. Cumulative frequency plot for gold based on core recovery. ........................................ 164 Figure 19.3. Location map showing mineralized zones and drill hole collars. .................................. 165 Figure 19.4. Scatter plot of Fire Assay Gold (x axis) vs. Screen Analysis Au (y axis). Data has been log transformed. ......................................................................................................................... 169 Figure 19.5. Lognormal cumulative frequency plot for Au in core and RC Main A Zone. ................ 170 Figure 19.6. Lognormal cumulative frequency plot for Au in core and RC Main B Zone. ................. 171 Figure 19.7. Lognormal cumulative frequency plot for Au in core and RC North Zone. ................... 171 Figure 19.8. Lognormal cumulative frequency plot for Au composites in Domain 3. ........................ 173 Figure 19.9. Lerchs-Grossman cases 1-12, includes pad liner cost, slope=45. ............................... 197

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Figure 19.10. Lerchs-Grossman cases 1-12, excludes pad liner cost, slope=45. ............................ 198 Figure 19.11. Base case LG shells ($900/oz Au) for La India Project. ............................................. 200 Figure 19.12. Main model West-East cross section at 3,176,095 North, looking North.................... 201 Figure 19.13. Main model West-East cross section at 3,176,495 North, looking North.................... 202 Figure 19.14. North model West-East cross section at 3,178,690 North, looking North.................... 203 Figure 19.15. North model West-East cross section at 3,179,115 North, looking North................... 204 Figure 21.1. Base case open pit LG shells, areas for value ranking. ................................................ 208 Figure 21.2. North design pits used for scheduling, sequenced by value ranking. ........................... 209 Figure 21.3. Main design pits used for scheduling, sequenced by value ranking. ............................ 210 Figure 21.4. Pit design slope parameters. ......................................................................................... 211 Figure 21.5. Design pits used for scheduling with roads, dumps, leach pad, and infrastructure. ..... 213 Figure 21.6. Final surface, post mining and waste dump reclamation. ............................................. 217 Figure 22.1. Process flowsheet. ........................................................................................................ 229 Figure 23.1. Construction schedule. .................................................................................................. 245 Figure 25.1. La India Project cash flow sensitivity chart. .................................................................. 268

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List of Tables Table Page

Table 3.1. Expected gold recovery by oretype. ..................................................................................... 6 Table 3.2. Measured and Indicated mineral resource estimate, all material types, all areas, La India project. ........................................................................................................................................... 8 Table 3.3. Inferred mineral resource, all material types, all areas, La India project. ............................. 8 Table 3.4. Measured and Indicated mineral resource, oxide material only, all areas, La India project.9 Table 3.5. Inferred mineral resource estimate, oxide material only, all areas, La India project. ........... 9 Table 3.6. Base case economic parameters for pit design. ................................................................ 10 Table 3.7. Base case ($900/oz) Lerchs-Grossman, contained Measured, and Indicated resources. 11 Table 3.8. Base case ($900/oz) Lerchs-Grossman, contained Inferred resources............................. 11 Table 3.9. Detailed pit designs based on base Lerchs-Grossman, MII pit resources ......................... 12 Table 3.10. Design pit scheduling parameters. ................................................................................... 13 Table 3.11. Mine production schedule based on Measured, Indicated, and Inferred mineral resources. .................................................................................................................................... 14 Table 3.12. Major mining equipment fleet requirements. .................................................................... 15 Table 3.13. Mine personnel requirements. .......................................................................................... 16 Table 3.14. Mine capital expenditures summary. ................................................................................ 16 Table 3.15. Unit mine operating cost summary. .................................................................................. 17 Table 3.16. Annual mine operating cost summary. ............................................................................. 17 Table 3.17. Process design criteria. .................................................................................................... 18 Table 3.18. Process operating costs by ore domain, 2010 USD. ....................................................... 22 Table 3.19. Mine production schedule. ............................................................................................... 22 Table 3.20. Projected cash flow, base case scenario. ........................................................................ 28 Table 3.21. Project Cash flows and IRR, Year pre-construction -2 through closure........................... 29 Table 3.22. Project cash flows and IRR, Year PP through closure. ................................................... 29 Table 3.23. La India cash flow sensitivity analysis. ............................................................................. 30 Table 3.24. Proposed 2011 budget, La India Project. ......................................................................... 33 Table 4.1. Contributors and responsible Qualified Persons for PEA report. ....................................... 37 Table 6.1. La India project mining concessions. ................................................................................. 51 Table 6.2. Permits required for mine construction and operation. ...................................................... 60 Table 12.1. Exploration activities summary. ........................................................................................ 92 Table 12.2. Exploration target areas. .................................................................................................. 94 Table 15.1. Element concentrations analyzed and analytical limits. ................................................. 115 Table 16.1. Summary statistics, all blank samples............................................................................ 119 Table 16.2. Summary statistics, blank samples preceded by mineralized samples. ........................ 119 Table 16.3. Summary results, assay results of certified standards. .................................................. 123 Table 16.4. Au assays of independent samples collected by M Gray............................................... 150 Table 18.1. Metallurgical sample composites. .................................................................................. 154 Table 18.2. Bond work index test results. ......................................................................................... 157 Table 18.3. Bottle roll leach test results. ........................................................................................... 158 Table 18.4. Column leach test results. .............................................................................................. 159 Table 18.5. Column leach test results by ore domain. ...................................................................... 160 Table 18.6. Summary of gold recoveries by ore domain. .................................................................. 161 Table 19.1. Summary of gold in assays at Main Zone sorted by geologic domains. ........................ 166 Table 19.2. Summary of gold distribution at Main Zone Domain 1. .................................................. 166 Table 19.3. Capping strategy for Main Zone. .................................................................................... 167 Table 19.4. Summary of gold in capped assays in Main Zone. ........................................................ 167 Table 19.5. Summary of gold in assays at North Zone sorted by geologic domains. ....................... 168 Table 19.6. Capping strategy for North Zone. ................................................................................... 168 Table 19.7. Summary of capped gold in assays at North Zone sorted by geologic domains. .......... 168 Table 19.8. Summary of gold in 5m composites at Main Zone sorted by geologic domains. ........... 172 Table 19.9. Summary of gold in 5m composites at North Zone sorted by geologic domains. .......... 172

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Table 19.10. Summary of gold populations in Domain 3. ................................................................. 174 Table 19.11. Summary of semivariogram parameters for gold. ........................................................ 175 Table 19.12. Summary of rock densities. .......................................................................................... 176 Table 19.13. Summary of ordinary kriging search parameters North Zone. .................................. 178 Table 19.14. Summary of ordinary kriging search parameters Main Zone. ................................... 180 Table 19.15. Measured and Indicated mineral resource estimate, all material types, all areas, La India project. .............................................................................................................................. 184 Table 19.16. Inferred mineral resource, all material types all areas, La India project...................... 184 Table 19.17. Measured mineral resource, Main Zone....................................................................... 185 Table 19.18. Indicated mineral resource, Main Zone. ....................................................................... 185 Table 19.19. Inferred mineral resource, Main Zone. ......................................................................... 185 Table 19.20. Measured plus Indicated resource, Main Zone. ........................................................... 186 Table 19.21. Indicated resource, North Zone. ................................................................................... 186 Table 19.22. Inferred resource, North Zone. ..................................................................................... 186 Table 19.23. Measured and Indicated mineral resource, oxide material only, all areas, La India project. ....................................................................................................................................... 187 Table 19.24. Inferred mineral resource estimate, oxide material only, all areas, La India project. ... 187 Table 19.25. Main Zone, Measured oxide mineral resource. ............................................................ 188 Table 19.26. Main Zone, Indicated oxide mineral resource. ............................................................. 188 Table 19.27. Main Zone, Inferred oxide mineral resource. ............................................................... 188 Table 19.28. Main Zone, Measured plus Indicated oxide mineral resource. .................................... 189 Table 19.29. North Zone Indicated oxide mineral resource. ............................................................. 189 Table 19.30. North Zone, Inferred oxide mineral resource. .............................................................. 189 Table 19.31. Comparison between Jan. 2008 (drilling through 2007), Jan 2009 (drilling through 2008) and May 2010 (drilling through 22 January 2010) resource estimates. .................................... 190 Table 19.32. Summary of Resource at a 0.4 gpt Au cutoff sorted by Domains. ............................... 191 Table 19.33. Comparison of contained gold, 2010 resource model to 2009 resource model. ......... 192 Table 19.34.Base case economic parameters for pit design. ............................................................ 193 Table 19.35. Lerchs-Grossman cases 1 12; includes pad liner cost; slope = 45 ............................ 195 Table 19.36. Lerchs-Grossman cases 13 24; excludes pad liner cost; slope = 45 ........................ 196 Table 19.37. Base case ($900/oz) Lerchs-Grossman, contained Measured, and Indicated resources. ................................................................................................................................................... 198 Table 19.38. Base case ($900/oz) Lerchs-Grossman, contained Inferred resources....................... 199 Table 19.39. Detailed pit designs based on base Lerchs-Grossman, MII pit resources ................... 205 Table 21.1. Pit design parameters..................................................................................................... 210 Table 21.2. Design pit scheduling parameters. ................................................................................. 212 Table 21.3. Mine production scheduling parameters. ....................................................................... 214 Table 21.4. Mine production schedule based on Measured, Indicated, and Inferred mineral resources. .................................................................................................................................. 215 Table 21.5. Waste material dumping elevations. .............................................................................. 219 Table 21.6. Major mining equipment fleet requirements. .................................................................. 221 Table 21.7. Mine personnel requirements. ........................................................................................ 222 Table 21.8. Mine capital expenditures summary. .............................................................................. 223 Table 21.9. Unit mine operating cost summary. ................................................................................ 225 Table 21.10. Annual mine operating cost summary. ......................................................................... 225 Table 21.11. Mining cash flow summary. .......................................................................................... 226 Table 21.12. Mining cash flow parameters........................................................................................ 227 Table 22.1. Process design criteria. .................................................................................................. 234 Table 22.2. Process operating costs by ore domain, 2010 USD. ..................................................... 238 Table 22.3. Crushing and conveying operating cost estimates, 2010 USD. ..................................... 239 Table 22.4. Leaching and plant operating cost estimates, 2010 USD. ............................................. 239 Table 22.5. Refining and laboratory operating cost estimates, 2010 USD. ...................................... 239 Table 22.6. Summary of manpower and costs, 2010 USD. .............................................................. 240 Table 22.7. Allocation of process manpower. ................................................................................... 241 Table 22.8. Reagent consumption and cost estimates. .................................................................... 242

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Table 22.9. Table 23.1. Table 24.1. Table 25.1. Table 25.2. Table 25.3. Table 25.4. Table 27.1.

Mine production schedule. ............................................................................................. 243 General and Administration Cost Summary ................................................................... 250 Closure costs, heap leach facilities. ............................................................................... 260 La India Project projected cash flow............................................................................... 265 Project Cash flows and IRR, Year pre-construction -2 through closure......................... 266 Project cash flows and IRR, Year PP through closure. ................................................. 266 La India cash flow sensitivity. ......................................................................................... 268 Proposed 2011 budget, La India Project. ....................................................................... 274 List of Appendices

Appendix

Page

Appendix A. Summary of significant drill intercepts, 2004 through 22 January 2010 reverse circulation and diamond drilling. ................................................................................................ 286 Appendix B. Summary of significant drill intercepts, 2010 reverse circulation and diamond drilling, Tarachi area, not part of resource estimate database.. ............................................................. 312 Appendix C. Summary of reverse circulation drilling where water was injected during drilling (wet drilling technique): 2005, 2006, 2007, and 2008 reverse circulation drilling. ........................... 313 Appendix D. Summary of blank material certification assays. .......................................................... 317 Appendix E. RC and diamond core drillholes in resource estimate database, Main Zone: collar location, orientation, and total depth summary table. ................................................................ 318 Appendix F. RC and diamond core drillholes in resource estimate database, North Zone: collar location, orientation, and total depth summary table. ................................................................ 329 Appendix G. Semi-variograms, Main and North Zone oretype domains 1, 2, 3, 5, 6, 12, 17, & 18. . 336 Appendix H. Bulk density data information from Kappes Cassiday and Associates......................... 364 Appendix I. Period-end maps, pit, waste rock dump, and road status at end of production periods.368

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3 EXECUTIVE SUMMARY 3.1 Introduction The La India project comprises multiple volcanic rock hosted, high sulfidation, epithermal gold systems. Grayd Resource Corporation has been actively exploring the project since 2004. Work completed to date includes geologic mapping, geochemical rock chip sampling, airborne geophysical surveys, ground geophysical surveys, photogrammetric topographic mapping, diamond drilling, reverse circulation drilling, baseline environmental surveys, and metallurgical testing. In 2007 Grayd commissioned Giroux Consultants Ltd and Resource Geosciences de Mexico SA de CV to provide an independent mineral resource estimate and CSA NI43-101 compliant Technical Report for the La India project. An Inferred mineral resource estimate was published in February 2008. After completion of an additional 12,130 meters of reverse circulation drilling and an additional 2,640 meters of diamond core drilling, in August 2008 Grayd commissioned Giroux and RGM to create an updated CSA NI 43-101 compliant resource estimate for the project, which was published in February 2009. Since that time and up until 22 January 2010 Grayd has completed an additional 11,976 meters of reverse circulation drilling in 134 drillholes and an additional 2,444 meters of diamond core drilling in 37 drillholes. In January 2010 Grayd commissioned Resource Geosciences de Mexico SA de CV and Giroux Consultants Ltd to prepare an updated independent mineral resource estimate and CSA43-101 compliant Technical Report for the La India project, which was published in June 2010. In 2010 Grayd commenced drill testing of the Tarachi prospect, located 8 km northwest of the Cieneguita zone. A total of 27 diamond core drillholes totaling 6,276 m and 8 reverse circulation drillholes totaling 1,926m were completed in three periods between February 18 to October 24, 2010. Nearly all of the Tarachi drillholes intersected significant mineralized widths containing greater than 0.20 gpt Au, with local higher grade intervals. Highlights include as much as 244 m @ 0.85 g/t including 90 m @ 1.20 gpt Au (DDH-10-167). True widths and controls of mineralized zones have yet to be determined. The Tarachi drillholes are not part of the resource model database and resources have not yet been defined for this area. Recently, drilling has been started again on the property utilizing one RC drill rig. Many of the Tarachi holes were still mineralized at the end of the hole and the lateral extents of mineralization is unknown. Surface mapping and sampling have outlined a greater than five square area with gold potential. Therefore, is expected to be a focus of future drill programs at the La India project. In July 2010, Grayd Resources commissioned the authors of this report to produce a Preliminary Economic Assessment of the La India project, based upon the Measured, Indicated and Inferred resources defined for the Main and North Zones and published in the June 2010 Technical Report. This report comprises the Preliminary Economic Assessment of the La India project using mineral resource and cost data current as of the date of publication of this report. This Technical

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Report updates the previously released CSA NI43-101 compliant Technical Reports authored by Ebert (2004), Gray (2006), Gray and Giroux (2008), Gray and Giroux (2009), and Gray and Giroux (2010). This report has been prepared to meet Canadian Securities Administrators National Instrument 43-101 standards. The report provides a summary of the geology of the project, an independent estimate of a mineral resource, and the results preliminary engineering and cost studies related to the economic viability of the project. This Technical Report integrates the contributions of: M.S. Patricia Aguayo Gary Giroux, P. Eng., Giroux Consultants Ltd. James H Gray, P.Eng., Moose Mountain Technical Services (MMTS) Matthew D Gray, Ph.D., C.P.G., Resource Geosciences de Mexico (RGM) Ritch Hall, P.Geol. Fred Lightner, P.E. Curtis McCullough, P.E. Hans Smit, P. Geol. Mark E Smith, P.E. RRD International Corp. Matthew D. Gray Ph.D., C.P.G., James H. Gray, P. Eng., Mark E. Smith P.E., and Gary Giroux, P.Eng. served as Qualified Persons as per definitions of CSA NI43-101 for the preparation of this Technical Report. This Technical Report updates the previously released CSA NI43-101 compliant Technical Reports authored by Ebert (2004), Gray (2006), Gray and Giroux (2008), and Gray and Giroux (2009). 3.2 Location, Mining Concessions, Surface Rights, Permits The La India project comprises 27 mining concessions totaling 26,643.51 hectares and is located in the municipality of Sahuaripa, State of Sonora, Mexico, approximately 210 km E-SE of the city of Hermosillo. The center of the project area is located at UTM Zone 12, 709,000E 3,174,000N, North American Datum 27, or North Latitude 28o 40 41 West Longitude 108o 51 40, North American Datum 27 Mexico. The mining concessions are currently controlled by Resource Grayd de Mexico SA de CV (Grayd) by means of direct ownership and by 8 separate agreements whereby Grayd can earn a 100% interest in certain concessions by making cash and share payments totaling $3.228M USD and 835,000 shares over a 5 year period. Thus far $2.703M USD has been paid towards these concessions. Should Grayd elect to acquire all currently optioned concessions, an additional $0.525M USD in payments would be pending. Payment has been made in full for the claims that host the majority of the Measured, Indicated, and Inferred resources described in this report. Some concessions are subject to underlying NSRs, varying between 1 and 3%. Part or all of these NSRs can be purchased by Grayd which would result in NSRs between 0 and 1%. The legal standing of the mining concessions has not been verified by the authors.

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Surface rights in the project area are owned by the Matarachi Ejido (agrarian community) and private parties. All Measured, Indicated and Inferred project resources lie within privately owned or possessed land. For all identified target areas Grayd Resources has executed surface access lease agreements with the property owners or possessors allowing Grayd access to conduct exploration work. Existing agreements permit exploration activities only. Exploitation and production activities will require execution of new lease or purchase agreements. Grayd is currently negotiating to acquire the surface rights needed for project development. The defined mineral resource for the project, and all lands required for infrastructure as proposed in this Technical Report, are wholly contained within three privately held properties: Rancho Bronces y Bajios (aka La Cieneguita), Rancho La Amargosa, and Ranch El Duraznito. The legal standing of surface rights has not been verified by the authors or RGM. As detailed in Item 6.1.2 of this Technical Report, a preliminary review of title status for these properties indicates that they have not been re-titled to reflect changes in legal ownership following the death of original owners. Until corrected titles are issued for these properties, Grayd cannot execute legally binding surface rights agreements that are required to obtain Federal environmental permits for mine construction and operation. The current agreements with the land possessors are sufficient to permit exploration activities that are conducted under the auspices of environmental regulation NOM-120, as described in Item 6 of this Technical Report. 3.3 Exploration and Mining History The first gold discovery in the region, as recorded by Spanish colonials, was made in 1673 at Ostimuri. The gold deposit at Mulatos was discovered by the Spaniards in 1806, but it is likely that indigenous peoples exploited the native gold bearing oxidized zone of the Mulatos deposit prior to the colonial epoch. Small scale mining has been semi-continuous in the district during the last two centuries (Consejo de Recursos Minerales, 1992). Much of the early mining and all of the small-scale present mining (hand mining by local artisanal miners) targets oxidized fractures containing fine-grained visible gold. Small underground mines and prospects are present throughout the La Cruz and La Viruela areas. Local residents state that the La Cruz - La Viruela property was intermittently mined at a small scale during the early 1920s and 30s. Modern exploration work has been conducted at the La Viruela-La Cruz property. In the late 1980s New Golden Sceptre Minerals and New Goliath Minerals completed approximately 2,000m of percussion drilling. In the early 1990s Noranda acquired the rights to La Cruz - La Viruela and completed 2,616m of reverse circulation drilling (Jenkins, 1994) In 1993 San Fernando Mining Company Ltd. acquired the property and conducted further drilling, including 10 diamond drillholes totaling 2,268m at La Viruela and 11 diamond drillholes at La Cruz totaling 1,292m (McDougall, 1995). Grayd Resource Corporation has been actively exploring the project since 2004. Work completed to date includes geologic mapping, geochemical rock chip

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sampling, airborne geophysical surveys, ground geophysical surveys, photogrammetric topographic mapping, diamond drilling, reverse circulation drilling, baseline environmental studies, and metallurgical testing 3.4 Geology and Mineralization The La India project lies within the Sierra Madre Occidental (SMO) province, a regionally extensive Eocene to Miocene volcanic field which extends southeast from the United States-Mexico border to central Mexico. The La India project lies within the western limits of the SMO in an area dominated by outcrops of andesite and dacitic tuffs, overlain by rhyolites and rhyolitic tuffs, that have been affected by large scale N-NW striking normal faults and intruded by granodiorite and diorite stocks. Incised fluvial canyons have cut the uppermost strata and expose the Lower Series volcanic strata. The project area is predominantly underlain by a volcanic sequence comprised of andesitic and felsic extrusive volcanic strata with interbedded epiclastic volcaniclastic strata of similar composition. The mineral occurrences present in the project area, and the deposit type being sought, are volcanic hosted, epithermal, high sulfidation (HS) gold-silver deposits. Such deposits may be present as veins and/or disseminated deposits. The La Viruela-La Cruz area comprises one of several high sulfidation epithermal mineralization centers recognized in the region (Staude, 2001). 3.5 Drilling and Sampling In diamond drill campaigns carried out in 2004, 2007, 2008, 2009, and through 22 January 2010, Grayd Resource completed 7,557 meters of BQ, HQ, and PQ diameter diamond core drilling in 102 drillholes at the La Viruela, La Cruz, Cerro de Oro, Cieneguita, and Espaola areas. Seven diamond core holes within the resource area were used exclusively for metallurgical testing, thus 95 diamond drillholes totaling 7,208 meters constrain the resource estimate presented in this report. In 2005, 2006, 2007, 2008, 2009, and through 22 January 2010,, Grayd Resource completed 45,334 meters of 5 inch diameter reverse circulation drilling in 542 drillholes. Of these, 32 were exploration holes or were drilled outside of the modeled resource domains, thus 510 drillholes totaling 40,871 meters constrain the resource estimate presented in the June 2010 Technical Report. Subsequent to the publication of the June 2010 resource estimate, Grayd commenced both diamond core and reverse circulation exploration drilling at the previously undrilled Tarachi zone. A total of 27 diamond core drillholes totaling 6,276 m and 8 reverse circulation drillholes totaling 1,926m were completed in three periods between February 18 to October 24, 2010. The Tarachi area is not included in the resource model.

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Industry standard sampling methods were utilized to collect the reverse circulation drillhole samples. Center return 5 diameter bits were used. Drilling was conducted dry unless significant water production or hole plugging required the use of wet drilling methods. While drilling in dry conditions compressed air was used to force drill cuttings up the drill string for collection. Cuttings were forced into a cyclone and Jones splitter as drilling progressed. When drilling in wet conditions, water and compressed air were injected into the hole to force cuttings up the drill string and a rotary splitter was employed. Samples were collected from initiation to termination of the drill hole, at intervals of 1.524m (5 feet) m. Throughout the drilling campaigns, Grayd implemented a quality assurance and quality control program appropriate for an exploration program. Results verify that the analytical results of the Grayd drilling programs are reliable and suitable for resource estimation purposes. Key components of the QA/QC program were: systematic insertion into the sample stream of blank samples and standards; analyses of duplicate samples; confirmatory assays by a second laboratory; independent confirmatory sampling, and use of multiple analytical techniques to confirm validity of results. For drillholes used in the resource model database, approximately 8.3% of all samples submitted for assay by Grayd were control samples consisting of certified blanks, certified reference standards, field duplicates, and sample preparation duplicates. Additionally, same-lab duplicate assays were conducted on 3.9% of all pulps and check assays by an independent lab were conducted on 1.6% of all pulps. 3.6 Metallurgical Testing In 2006, 2007, and 2009 Grayd Resource commissioned Kappes, Cassiday & Associates (KCA) to conduct preliminary metallurgical tests on reverse circulation cuttings and drill core obtained from the Main and North Zones (Albert, 2007a, Kappes, Cassiday & Associates, 2008; 2009; 2010a; 2010b). Samples selected for testing represented the economically important mineralized domains. Reverse circulation drill cuttings and drill core samples were subjected to bottle roll tests over 96 hours conducted on material milled to 80% passing 0.075mm mesh. Oxide material yielded gold extractions of 85 to 96% with cyanide consumption of 0.31 to 1.78 kg/tonne, whereas sulfide material yielded gold extractions of 5 to 86% and cyanide consumptions of 1.09 to 6.81 kg/tonne. Bottle roll tests for silver extraction from oxide material yielded recoveries of 18 to 95%, but because of the low silver content of the majority of the La India mineralized material, silver is not considered to be of economic significance. KCA conducted flotation tests on two samples of sulfide material, 36372 C and D. Material was ring and puck pulverized to 80% minus 0.106mm and unoptimized flotation tests were completed using a Denver D-1 flotation machine. KCA determined that for these two samples, 94% of the contained gold reports to the rougher flotation concentrate Albert, 2007b).

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Metallurgical test work completed on drill core from the 2007, 2008, and 2009 drill campaigns included physical testing (rock densities and Bond Work Index testing), head analysis, milled bottle roll leach test work, gravity concentration test work, agglomeration and percolation test work, column leach test work, and environmental test work. All preparation, assaying and metallurgical studies were performed utilizing accepted industry standard procedures. Thirteen composites representing oxide material from nine distinct ore domains were analyzed (Albert, 2007a; Kappes Cassiday and Associates, 2008, 2009, 2010a, 2010b). Column leach tests for gold extraction indicate that the oxide material at La India is amenable to standard cyanide heap leach processing. Column leach tests of 12.5mm crushed material yielded gold recoveries from 62 to 94%. Column leach tests of 25mm crushed material yielded gold recoveries from 79 to 97%. Column leach tests for silver extraction generally yielded low recoveries (2 to 26%) regardless of crush size. Silver is not considered to be of economic significance and silver recoveries have not been a focus of the continuing metallurgical studies. Multi-element analyses indicated that the La India samples do not contain any elements detrimental to cyanide leaching (Kappes, Cassiday and Associates, 2008). Expected gold recoveries by ore type, in a conventional cyanide extraction and heap leach process, are summarized in Table 3.1. Additional metallurgical testing is required to accurately define appropriate processing methods and expected metal recoveries for the La India mineralization.Table 3.1. Expected gold recovery by oretype.

Ore Domain Main 1 Main 2 Main 2A Main 3 Main 5 Main 6 North 11 North 12 North 12A North 14 North 17 North 18

Ore Type Dacite Silica Massive Silica Massive /

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