ITEM 2.  PROPERTIES

Chandalar Property, Alaska

The Chandalar gold property is currently our only mineral property. It is an exploration stage property. We attracted to the Chandalar district because of its similarities to productive mining districts, its past positive exploration results, and the opportunity to control multiple attractive gold quartz-vein prospects and adjacent unexplored target areas. The gold potential of the Chandalar district is enhanced by similarities to important North American mesothermal gold deposits, a common attribute being a tendency for the mineralization to continue for up to a mile or more at depth, barring structural offset. Mesothermal ore deposits yield anywhere from less than 100,000 to over 10 million ounces of gold at 0.1 to over 1 oz/ton gold. We believe that our dominant land control eliminates the risk of finding potential ore deposits being located within competitor claims. Summarily, the scale, number and frequency of the Chandalar district gold-bearing exposures and geochemical anomalies compare favorably to similar attributes of productive mining districts.

The Chandalar district has a history of prior production, but there is no current production, except for the test mining pit we did in August of 2009 and some small-scale placer operations by an independent miner, Mr. Delmer Ackels, on inlier claims to our claim block (See Item 3, Legal Proceedings section of this document). We may soon attempt commercial gold production on a portion of the property known as the Little Squaw Creek drainage, where a gold deposit has been discovered and partially drilled out during our 2007 exploration work. This deposit is geologically characterized as an aggradational placer gold deposit. It is unusual in the sense that it is the only such known alluvial, or placer, gold deposit in Alaska, although many exist in neighboring Siberia. Our discovery contrasts to others in Alaska that are commonly know as bedrock placer gold deposits. Aggradational alluvial gold deposits contain gold particles disseminated through thick sections of unconsolidated stream gravels in contrast to bedrock placer deposits where thin but rich gold-bearing gravel pay streaks rest directly on bedrock surfaces. Aggradational placer gold deposits are generally more uniform and thus conducive to bulk mining techniques incorporating economies of scale than are bedrock placer gold deposits whereas the nature of gold distribution tends to be erratic and highly variable. The plan view of our discovery is somewhat funnel-shaped, and as such has been divided into two distinct geomorphological zones: a Gulch, or narrower channel portion, and a Fan, or broad alluvial apron portion.

During the summer of 2009, we permitted and successfully completed a test mining operation on the upper end of the Gulch portion of the Little Squaw Creek alluvial gold deposit. We mined about 30,000 cubic yards of glacial overburden and stream alluvium of which about 13,830 cubic yards were processed through our wash plant yielding approximately 594 ounces of placer gold.

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Map 1 – Location of the Chandalar, Alaska Mining District

We consider Alaska to be the most favorable jurisdiction in the United States for the development of mining projects. Our Chandalar property lies within politically favorable terrain, all either being on state land or land we own. Alaska has honored its constitution’s mandate to encourage natural resource development by assisting miners with grants, low-interest loans, road/plant construction, a three-and-a-half-year mining tax moratorium, and a bottom-line tax write-off of the first $20 million in accrued exploration costs for each new mine. The nation’s wealthiest state has no income or sales tax and distributes annual dividends to its citizens from the burgeoning $34.5 billion Permanent Fund (at March 1, 2010) established for its 628,499 eligible residents. Alaska’s favorable status may become tainted as recent activities by environmental groups have been promoting an agenda that would stop all mining activities within the state. We believe that this movement will not gain traction, but such activities may point toward possible heightened scrutiny of future mining projects.

Location, Access & Geography of Chandalar

The Chandalar mining district lies north of the Arctic Circle at a latitude of about 67°30'. The district is about 190 air miles north of Fairbanks, Alaska and 48 air miles east-northeast of Coldfoot (Map 1). The center of the district is approximately 70 miles north of the Arctic Circle.

Access to our Chandalar mining camp at Squaw Lake is either by aircraft from Fairbanks, or overland during the winter season only via a 100-mile-long trail from Coldfoot through the community of Chandalar Lake to Squaw Lake. An unimproved dirt road runs 7 miles from Chandalar Lake to Tobin Creek where there is an old, deactivated mill/mine facility on our property. Squaw Lake camp is connected the Tobin Creek facility by 11 miles of dirt road over two mountain passes that is usable only during the summer and fall months. We do our heavy equipment haulage using the Coldfoot to Squaw Lake winter trail, the use of which is practical only during the months of February and March and sometimes April of each year.. Multiengine cargo aircraft can land at the state-maintained 4,700 foot airfield at Chandalar Lake or at our 4,400 foot Squaw Lake airstrip. Coldfoot is an important road traffic service center on the Dalton Highway. The Dalton Highway, which parallels the Trans-Alaska Pipeline, is the only road to the

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Prudhoe Bay oil fields on Alaska’s North Slope, and it is part of the state’s highway network. Driving time from Fairbanks to Coldfoot is about 4.5 hours. Heavy equipment haulage time from Coldfoot to Squaw Lake generally takes two days, depending on weather; snow machines take less than 4 hours.

It is our assessment that all-weather road access into the Chandalar would dramatically enhance the economics of exploration for and development of gold deposits on our mining claims. The state of Alaska recently obtained a right-of-way access into the Chandalar area. On April 11, 2005 the State of Alaska (the plaintiff) filed a lawsuit against the United States and sixteen companies and individuals (the defendants) to gain quiet title to the state’s rights-of-way for the Coldfoot to Chandalar Lake Trail. This historic trail (designated as RST 009) was originally established by miners working their Chandalar district prospects. The State of Alaska and all defendants agreed to a pre-trial settlement of the action. The settlement was then agreed to by a U.S. District Court Judge on January 9, 2007, making it a binding final judgment. This judgment creates a permanent, sixty-foot wide public highway right-of-way for the Trail. As is required by the judgment, the State of Alaska has already established the exact location of the route using a survey-grade Global Positioning System, and set out permanent survey markers defining the rights-of-way across the terrain.

We believe this judgment now opens a door of opportunity for us to promote state-sponsored road construction into our Chandalar gold property, and the two million acres of state land surrounding it. Alaska has a well-publicized commitment to jobs creation and infrastructure development. Should our exploration efforts, particularly on the hard rock prospects, yield a major gold deposit discovery we believe the public and state would support converting the winter trail into a highway.

This lawsuit represented a re-assertion of traditional access rights across federal land gained at the time of statehood, and was intended to set precedence for establishing the state’s unrestricted right-of-way to more than 600 other similarly qualified historic trails within Alaska as established by Revised Federal Statute 2477. However, this settlement without trial avoided the possibility of setting such a precedent. The final judgment does not specify the Coldfoot to Chandalar Trail to be an RS 2477 route, but it does say that it is to be treated as if it were one.

A study was conducted in support of the litigation between the State of Alaska and the U.S. Department of Interior over rights-of-way on historic trails and roads originating from Section RS 2477 of the 1867 Mining Act. A report entitled History of the Caro-Coldfoot Trail (RST 262) and the Coldfoot-Chandalar Trail (RST-9) was prepared by the Alaska Department of Natural Resources (DNR), Division of Parks and Outdoor Recreation, and Office of History and Archaeology Report Number 117, by Rolfe G. Buzzell, Ph.D., Historian. The report is an in-depth history of mining and trail use in the Coldfoot-Caro-Chandalar areas from the 1890s to the present. It is not a copyrighted document, and the interested public can readily obtain a copy from the Company by sending a request to ir@goldrichmining.com.

Geographically, the Chandalar district is situated in rugged terrain just within the south flank of the Brooks Range where elevations range from 1,900 feet in the lower valleys to just over 5,000 feet on the surrounding mountain peaks. The region has undergone glaciation due to multiple ice advances originating from the north and, while no glacial ice remains, the surficial land features of the area reflect abundant evidence of past glaciation. The district is characterized by deeply incised creek valleys that are actively down-cutting the terrain. The steep hill slopes are shingled with frost-fractured slabby slide rock, which is the product of arctic climate mass wasting and erosion. Consequently, bedrock exposure is mostly limited to ridge crests and a few locations in creek bottoms. Vegetation is limited to the peripheral areas at lower elevations where there are relatively continuous spruce forests in the larger river valleys. The higher elevations are characterized by arctic tundra.

Snow melt generally occurs toward the end of May, followed by an intensive, though short, 90-day growing season with 24 hours of daylight and daytime temperatures that range from 60 to 80° Fahrenheit. Freezing temperatures return in late August and freeze-up typically occurs by early October. Winter temperatures, particularly in the lower elevations, can drop to -50° F or colder for extended periods. Annual precipitation is 15 to 20 inches, coming mostly in late summer as rain and during the first half of the winter as snow. Winter snow accumulations are modest. The area is essentially an arctic desert.

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Map 2 – Chandalar Mining Claim Block

Chandalar Mining Claims

We have a block of contiguous mining claims at Chandalar that cover a net area of about 17,270 acres (27 square miles) (Map 2), and which are maintained by us specifically for the exploration and possible exploitation of placer and lode gold deposits. The mining claims were located to cover most of the known gold bearing zones within an area approximately five miles by eight miles. Within the claim block, we own in fee 426.5 acres as twenty-one approximately 20-acre patented federal lode claims, one 15.7-acre patented federal placer claim, and one 5-acre patented federal mill site. In addition, there are forty-eight Traditional and MTRSC 40-acre State of Alaska claims lying largely within a block of one-hundred-five 160-acre MTRSC claims. The 23 federal patented claims cover the most important of the known gold-bearing structures. The 154 Traditional and MTRSC state mining claims provide exploration and mining rights to both lode and placer mineral deposits. Unlike federal mining claims, State of Alaska mining claims cannot be patented, but the locator has the exclusive right of possession and extraction of the minerals in or on the claim.

Holders of any class of State of Alaska unpatented mining claims are required to complete a minimum amount of annual labor on each claim and to additionally pay an annual rental on them. In the case of a claim block or group where the claims are adjacent, the total amount of required annual labor is determined by multiplying the number of claims by the amount required for an individual claim, and the excess value of labor expended on any one or more of the claims can be applied to the labor requirements on the other claims within the block or grouping. The amount of required annual labor work varies with the size and class of the mining claim and the amount of annual rental payable varies with the size, type and age of the claim. Labor expenses in excess of the annual requirement can be carried forward as a credit for up to four years. Alternatively, the holder of a state mining claim may make a cash payment to the state equal to the value of labor required in lieu of doing the assessment work.

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In the 2008/2009 assessment year, which ended on August 31, 2009, we spent $437,201 on work that qualified for annual labor requirements. Our excess value credit is $4,102,071, with $1,116,167 expiring on September 1, 2010, $1,742,768 expiring on September 1, 2011, $808,035 expiring on September 1, 2012, and $435,101 expiring on September 1, 2013.

Our annual holding costs for the entire block of mining claims will vary according to the number, type and age of the state mining claims that we maintain in a particular year. Our claim block and is not subject to any local taxation, including our private property (patented federal mining claims), as it does not lie within any borough or municipality.

The annual labor requirement for our Chandalar holdings is $100 per each Traditional 40-acre claim and $400 per each MTRSC 160-acre claim. Currently, the combined annual labor requirement for our claims is $46,900.

The State of Alaska adjusts the annual mining claim rental fees once every 10 years based on a local cost of living index. Starting in 2009, annual claim rental fees increased between 31% and 40% depending on the type (size) and age of the claim. Our 2009 annual claim rental fees of $29,602 are paid. The total annual rental obligation for the Chandalar property is currently $32,980, payment of which is due on or before November 30, 2010. Our claim rental fees for 2011 are expected to remain at $32,980 if the number of our mining claims remains constant.

The total current (2010) annual combined mining claims assessment work and rental holding costs for our Chandalar property is $79,880, which are included in mineral property maintenance expense and professional services expenses on our statement of operation. The details of our mining claims holding costs are shown in Table 1.

Our former management holds a mineral production royalty reservation on some mining claims within the Chandalar claim block. It is a 2% royalty defined as a gross product royalty on placer gold mining and as a net smelter return on lode mining production. The royalty on placer gold production is an “in kind” royalty to consist of the coarsest and largest particles of all gold produced. All of the patented federal mining claims are subject to this royalty, as are 19 of the Traditional unpatented state mining claims. The royalty is applicable to about 1,185 acres of the 17,270 acre property. We have an option agreement to purchase the royalty for a one-time cash payment of $250,000. The option terminates on June 23, 2013, if not exercised on or before that date.

Our rights to 5 of our mineral claims continue to be a matter of legal action. In December 2008 we received favorable jury verdicts from the Alaska Superior Court to settle a civil complaint we filed on February 16, 2007, against Gold Dust Mines, Inc., and its sole owners, Delmer M. Ackels and Gail E. Ackels (defendants), who are former placer miner lessees of the Chandalar property. Additionally, the court made several rulings during the trial that were also favorable to us. The final judgment of the court reflects the findings of the jury and was entered in favor of the Company on March 9, 2009. It found the defendants in trespass on a key claim, quieted title to all our contested mining claims and all other mining claims located in 2003 by the defendants in the name of Goldrich, ejected the defendants from all of our mining claims and dismissed their counterclaim with prejudice. The ruling affirmed that our claims were valid and also awarded us quiet title to 3 additional claims on Little Squaw Creek and 17 claims on upper Big Creek. The closest

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of the defendant’s remaining 9 claims on lower Big Creek are situated 2 miles or more from our claims. In May 2009, the defendants appealed Goldrich's final judgment in the Superior Court litigation to the Alaska Supreme Court. At this point, we believe a significantly unfavorable outcome and any loss is unlikely. See Item 3 containing the Legal Proceedings section of this document for a full discussion of the history, nature and current status of this legal action.

We believe that the trespass of Gold Dust Mines and the Ackels on a tiny fraction of our stakeholder mineral rights (about one percent, or covering less than 170 acres in total) at Chandalar does not materially adversely affect our company as being a mineral exploration asset for Goldrich, nor do we believe it would adversely affect our long term operations there should we find a mineable gold deposit on our claims. We also believe the 5 claims that were in conflict do not represent a significant portion of the overall mineral endowment of our Chandalar property. We do consider, however, that any Ackels’ placer mining activities on one of our state mining claims on upper Little Squaw Creek would interfere with our district exploration operations, as that is the location of our main camp and operations support facilities, and where the 2009 test mining was conducted. Should the Alaska Supreme Court overturn the Superior Court Judgment in favor of the Ackels and Gold Dust Mines, the ultimate affect on the Company’s exploration and development of its Chandalar property would not be material. In such case, we would incur the loss of a small portion of the mineralized material known to exist in the alluvium of Little Squaw Creek, and it could be temporarily detrimental to our ongoing exploration work in the sense that it would cause machinery congestion on the access roads, degradation of those roads, and also cost us an undetermined amount of time and expense in the relocation our exploration camp and supply facilities. The Superior Court Ruling at least temporarily removes the risk of a potential disruption to our exploration program and plans to expand the test-mining pit into commercial production. Our ability to exploit our other claims in the district has been strengthened as a result of our successful defense of title to all of our claims.  

Map 3 – Gold Prospects and Geologic Structure of Chandalar

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Chandalar Geology and Mineralization - (Technical Description)

The Chandalar mining district, located in northern Alaska, is a 100-square-mile prospect area on the south flank of the Brooks Range. Bedrock units that underlie the district are assigned a Proterozoic to Paleozoic age and are comprised of greenschist-facies metasedimentary rocks, including minor mafic meta-igneous rocks, and a thick basal section of black schist. Locally these rocks are predominantly a turbidite sequence of schist and gray-black phyllite with lesser metacarbonate and greenstone sills, which make up what is geologically known as the Coldfoot subterrane. These units are part of the 600-mile long highly mineralized “Southern Brooks Range Schist Belt”.

Within the Southern Brooks Range Schist Belt is the Ambler mineral district, located about 200 miles west of Chandalar. It is host to several world-class exhalative type or base metal volcanogenic massive sulfide deposits that are enriched in gold and thought to have emanated from subsea fissures forming a continental margin rift zone in Devonian time. We think the gold we see hosted by the schists at Chandalar originated in the rift zone sediments that have been partially re-mobilized and concentrated into structural geologic traps. Our work indicates that a chloritic phyllite unit known as the Mikado phyllite may be host to several styles of widespread mineralization. That formation has now become a focus of our exploration attention for discovery of a large tonnage low-grade gold deposit.

At Chandalar, a prominent 5-mile wide, west-northwest (WNW)-trending swarm of deep-seated shear zones has been cut by a conjugate set of northeast (NE) fault structures. This is part of a larger orthogonal stress field extending 10-20 miles east and west of the Chandalar district. Mid-Cretaceous (tentative age-date) gold mineralization is controlled by the numerous prominent WNW-trending shears but the most important gold prospects are found along a mile-wide N50-60°E trend that intercepts all the known WNW shear zones. Lode gold occurs at Chandalar as high-grade quartz veins, sheeted veining, millimeter-scale reticulating quartzose fractures, and as disseminations often associated with the sulfide minerals of pyrite, pyrrhotite and, most importantly, arsenopyrite. About 50 lode gold showings are known on our mining claims. The mineralized trend is defined by geologic mapping, soil geochemistry, and alteration/mineralization found between Mikado Mine on the south and extending more than four miles NE to the Northern Lights/Pallasgreen/Little Squaw Creek prospects. Exploration to date has been mostly surficial; only four shallow reverse-circulation drill holes have intercepted the trend, but with only minimal penetrations.

Erosion of the lode gold within the northeast trend of mineralization has generated seven known or suspected alluvial placer gold deposits in the creek drainages that incise it. So far as is known, the most prominent of these is the Little Squaw Creek placer gold deposit. We estimate over eleven million cubic yards of mineralized material in this deposit on which we successfully completed a test mining operation in the summer of 2009.

In the Chandalar area dismembered panels of the Coldfoot subterrane were overthrust due to northward-directed regional stresses along a nearly flat-lying to north-dipping thrust plate.  An episode of south-directed thrusting is also apparent, further complicating the structure.  Timing of the overthrusts is uncertain but the north-directed thrust is believed earlier or concurrent with mineralization; the south-directed thrusting appears later. Most mineralization occurs in a predominantly gray to black phyllite unit of the Mikado Phyllite in the upper plate or in orogenic quartz veins that cut the overlying more resistant quartz muscovite chlorite schist unit. As tentatively mapped, subsequent east-west compression of the phyllite unit has formed a large open, locally semi-overturned fold with an axis that gently plunges at about 14° to the NE.  Continuing multiple episodes of movement are evident on both fault systems; these ground movements have both provided loci for gold mineralization and in other cases displaced it. The spatial correlation of the NE fault set (Big Tobin prospect) intersecting the WNW Mikado shear zone has been conducive to ore-forming fluid movement and WNW-oriented precipitation of gold mineralization. The Mikado Mine area is situated at this intercept. Similar interaction of the two fault systems is evident at the Summit Mine, Little Squaw Mine, and Aurora Gulch.

The mineralized Chandalar quartz veins have been known since 1906 and minor gold production is reported from tunnels driven on the veins.  In 2006 gold was first recognized in the phyllite unit, occurring with disseminated sulfide minerals, mostly arsenopyrite, as well as fracture-hosted stockwork mineralization and as zones of sheeted veinlets.  Our 2006 reverse-circulation scout drill program encountered phyllite-hosted gold-arsenic sulfide mineralization at the Summit prospect area (DH SUM-12) but was not able to reach the bottom of the auriferous zone. Similarly, gold values were cut at the Ratchet Ridge prospect (DH RR-33) and at the Crystal (DH CRY-30). The auriferous phyllite

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section cut in DH SUM-12 is found to daylight (exposed under talus) in the Rock Glacier area and continues northward to the Aurora Gulch prospect. To the northeast altered or weakly mineralized phyllite has also been exposed by 2009 placer mining where it underlies the lower slope opposite Mello Bench, the location of our exploration camp, and yet farther north the placer RC drilling on Line 4.8 intercepted the gold-arsenic sulfide mineralized bedrock underlying Little Squaw Creek. Recently the mineralized phyllite has been found mantled by talus covered slopes at the head of Big Creek, Summit Gulch, the head of Big Squaw Creek, and to either side of St. Mary’s Pass near Mikado Mine.

Sampling of surface outcrops and float rock from the Mikado Phyllite will generally assay gold; however, results are erratic apparently due to the nugget effect of coarse gold. This analytical problem is related to the same reason a substantial placer has formed from these rocks. A few samples assayed very high – one grab sample of schist at 90 ppm gold (2.628 oz Au/st). Limited excavator trenching and hand dug test pits exposed auriferous sheeted veining at Mikado, Little Squaw Peak, Big Squaw Creek and Big Creek headwater areas. At Aurora Gulch a bedrock test pit in an area of sheeted veins reported grades averaging 0.61 ppm from four samples; at a lower stratigraphic level seven samples of altered dolomite with quartz stockwork averaged 1.46 ppm Au (an eighth sample was discounted because it assayed 38.8 ppm Au (1.133 oz Au/st)). Nearby, five samples of crenulated black phyllite with replacement sulfides and quartz averaged 1.4 ppm Au (0.041 oz Au/st). At Mikado, channel sampling at Trench 20 reported 80 ft of 0.35 ppm (0.010 oz Au/st) , 53 ft of 0.52 ppm(0.015 oz Au/st) , 35 ft of 1.22 ppm (0.036 oz Au/st), and 10 ft of 1.2 ppm Au (0.035 oz Au/st).  At Summit the last 35 ft of DH SUM-12 averaged 0.44 ppm Au (0.013 oz Au/st) (the hole ended in mineralization). One random chip sample of rock talus from the Rock Glacier area reported 54.88 ppm Au (1.602 oz Au/st). At least some of the phyllite-hosted gold occurs as free grains such as found in the orogenic quartz veins mined in the past. A grain of free gold was recently identified in a sheeted veinlet, gold grains have been found in disseminated masses of arsenopyrite (chips of arsenopyrite in a sample from Aurora Gulch assayed 18.55 ppm Au(0.542 oz Au/st) ) and grains of placer gold with attached phyllite were recovered in the 2009 test placer mine on Little Squaw Creek. Free gold can be panned from soil in the several sheeted veining areas that were tested. Mineralization occurring as fracture stockwork at Aurora shows persistent gold values, as it does in the trenching at Mikado and in the shear zone hosted gold at Mikado-St. Mary’s Pass.

Gold values closely associate with anomalous arsenic and elevated antimony is variably present.  Based on about 2,000 soil samples from the Chandalar property, a large soil Au-As anomaly (defined as >100 ppb Au) extending from the Kiska prospect northeastward about 1.5 miles to the Aurora Gulch prospect has been defined. Extensive fields of talus prevent sampling of the anomaly southwest of the Kiska prospect.  A second large area of soil gold straddles St. Mary’s Pass in the Mikado area. The soil anomaly is broken where the phyllite unit is overlain by erosional remnants of the ridge-forming and barren quartzose muscovite schist. This occurs on the high ridge above the Rock Glacier and on St. Mary’s Pass above the Mikado area.

Based on our sample data, scout drilling and surface mapping to date, we interpret the mineralization along the NE trend as likely the result of deep sourced fluids permeating multiple dilated structural intercepts with the WNW shear zones. Thereby, the NE structure controls the source, timing, and the location of Chandalar mineralization, while the WNW shear zones provide the hosting structure. Origin of gold and arsenic metals is unknown, but they are likely basinal sediments. A regional-scale gently plunging NE fold may be involved in localizing gold mineralization. We suspect the axis of the fold runs from St. Mary’s pass to under the 2009 test placer mine operation on Little Squaw Creek.  Mineralization appears vertically constrained within the phyllite unit.  Most mineralization at the Mikado occurs below an elevation of about 4,500 feet; on the opposite side of the pass the St. Mary’s Pass mineralization is also found below about 4,500 feet and mineral showings are found over 300 to 400 vertical feet below this elevation. This vertical constraint to mineralization is similar to the Aurora Gulch prospect gold values that are abruptly capped by hematite-spotted schist. Thickness of the mineralized phyllite is uncertain due to extensive talus cover and the lack of drill data; however, observations at Aurora Gulch and Rock Glacier areas suggest mineral occurrences are noted over a vertical relief in excess of 400 feet.  Similarly, soil gold anomalies occur on the east and west flanks of Eneveloe Saddle, but not across the top of the saddle.  Where the phyllite is mineralized it generally exhibits magnetic low field features in contrast to the relatively thin, 20 to 60 feet thick, overlying schist (“red top”), which is distinctly magnetic due to disseminated pyrrhotite. The magnetic schist unit occurs adjacent to most of the exposed prospects as erosional exposures in the stratigraphy above the auriferous phyllite. The south-facing gulch wall of Summit Gulch offers excellent exposures of the “red top” schist. The unit can be readily identified in ground-based magnetic surveys; a large area, interpreted as a flat tabular magnetic body, underlies the rock glacier east of where the surface is littered

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with mineralized float. It is interpreted that arsenopyrite associated with gold values is the alteration product of the magnetic pyrrhotite which is destroyed as part of the mineralization events and thereby magnetic low features are targets for exploration.

Interpretation of Exploratory Findings at Chandalar

A significant gold placer deposit occurs on Little Squaw Creek and a spatial relation to the phyllite unit is evident. The northeast plunge (about 14°NE) of the altered (+/- mineralized) phyllite unit beginning near the Summit Mine intercepts bedrock of the creek in the vicinity of the head of the placer deposit and continues northward, forming the bedrock below the creek. The placer gold deposit extends along the creek at least a mile to the north as confirmed by drilling. There is evidence that relatively small masses of Pleistocene ice high in the valley had selectively gouged the highly altered phyllite unit, which the ice followed as a path of least resistance (i.e. the altered phyllite), to an apparent terminal moraine site immediately upstream of Mello Bench (camp). Auriferous sediment has since been re-worked into placer deposits perched in thick sequences of glaciofluvial sediments.

While the Little Squaw Creek placer is a gold deposit itself, it also indicates the existence of a substantial lode source(s). In 2007 we conducted a placer drill program that indentified 10.5 million cubic yards of mineralized material. The placer deposit is open to the north and west, and bench deposits remain unevaluated on the east, thereby suggesting a reasonable alluvial resource discovery potential of one-half million oz fine gold. The placer deposit represents only the coarser fraction of the original in-situ resource in the portion of the lode source that has been eroded.     

Map 4 - Chandalar Exploratory Gold Deposit Drill Target with Proposed Drill Holes

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Proposed diamond core drilling for 2010 will evaluate the degree of mineralization occurring as a large strata-bound unit over four miles in length. The proposed drill program will further explore the correlation of the overlying magnetic schist and quartz muscovite chlorite schist, locally hematite-spotted, to the underlying phyllite and possible mineralization, as well as, to the orogenic gold-quartz veins that rise through it. We postulated that feeder zones through which ore-forming fluids rose are associated with dilation zones developed by periodic differential off-set movement between the deep-seated NE and WNW fault zones. These zones represent primary targets for drilling.

Chandalar Exploration Programs

Prior to the 2007 exploration season, despite our best efforts, we were unable to secure a diamond core drill contract to execute the previously identified drill plan on the hard rock prospects. In order to advance the hard rock exploration in both a time and cost effective manner, management revised the 2007 hard rock exploration plan to focus on other activities which could be concluded with the equipment available to us by ownership or by contract. That work has enhanced the hard-rock exploration targets, and diamond core drilling will be accomplished in the future, provided funds are available and a drilling service company can be retained. We were able to execute the placer gold drilling program as intended using a contracted reverse circulation rotary drill, as reported in the Exploration of the Chandalar Little Squaw Creek Alluvial Gold Deposit in the section below in this document. .

Our 2007 accomplishments fall into three key categories: 1) discovery and drilling delineation of a large placer gold deposit in Little Squaw Creek, 2) development of hard-rock gold prospects by excavator trenching at a number of promising sites along major geologic faults crossing the property, and 3) completion of a geophysical survey program related to enhancing the hard-rock gold exploration program. Additionally, we completed considerable upgrading of the local infrastructure, including new roads, an upgraded 25-man exploration base camp and improving the Squaw Lake airfield.

We were not able to obtain sufficient funding for drilling in 2008. Because of this lack of funding, only care and maintenance of the property along with a minimal geological field program was accomplished. Prospecting work was oriented towards examination of areas where disseminated gold values in schist had been previously detected. Importantly, this work discovered an area of mineralized schist boulders on the St. Mary’s Pass prospect where one large boulder assayed 90.8 ppm gold (2.92 ozAu/st). The additional soil sampling results also clearly define a drill target for gold disseminated in schist at the Rock Glacier prospect. Other activities included reclamation of several trenches dug in prior years, some clean up activates at the Mikado mine site, and extending the Little Squaw airstrip length to 4,500 feet.

Our Chandalar property and its mineralization are not compliant with Canadian National Instrument 43-101 standards. However, Mr. Barker, consulting geologist and Chandalar Project Technical Manager, prepared an internal technical report formatted to 43-101 standards in collaboration with J. O. Kenner and R. B. Murray that covers the hard rock and placer (or alluvial) gold programs at Chandalar through 2008. That report is dated April 15, 2009 and may serve as the foundation document for a future filing to achieve 43-101 compliance. It presents the status of the Chandalar project and provides recommendations and budgets for moving the project forward. The most important specific recommendations of the report are, in priority order:

1.

Continue a mineralized material evaluation program and develop, as warranted, a placer mine capable of processing 400 cubic yards of gravel per hour and producing 15,000 to 30,000 oz raw gold per year.

Phase 1: Mineralized material drilling of the Little Squaw Creek alluvial fan.  (Budget - $985,600)

·

Determine the northern, eastern and western limits of placer mineralization in the paleo fan.

·

Formulate drill plans for a continuing, future placer exploration program based on seasonal logistical constraints limiting drilling to about 15,000 feet per year. Contingent on the results of the Phase 1 drilling, select the highest priority of Phase 2 options; 2-A (in-fill drilling on the Little Squaw Fan), 2-B (resource evaluation of the Little Squaw canyon), and 2-C (Resource drilling on Big Squaw and Spring Creeks).

2.

Conduct seismic surveys, define the geomorphic classification of the Chandalar placer deposits in comparison to other deposits worldwide, assess marketability for coarse size fraction of placer gold, and

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present specific recommendations based on the 2007 drilling program.

·

Placer reconnaissance of other Chandalar streams

·

Seismic survey  (outside contract, budget  $30,000)

·

Recommendations for placer drilling, sampling, and analysis.

3.

Continue the hard rock trenching program, specifically on the St. Mary’s Pass, Aurora Gulch, Summit (including Bonanza), Pioneer, and Chiga prospects. A detailed program totaling 7,440 feet is recommended.  ( Budget- $131,325 )

4.

A diamond core drilling program should be designed and budgeted based on trench results from 2007 and the trenching recommended above.  Evaluate the tonnage potential at Mikado-St. Mary’s Pass, Aurora Gulch, Pioneer, and Summit prospects; the results will be the basis for future recommendations of mineralized material delineation drilling. Scout holes should be considered at the Rock Glacier, Ratchet, Pallasgreen, Chiga, Little Squaw west, and possible Northern Lights west extension prospects.  

5.

Plan and execute laboratory and on-site bulk sample testing of vein-hosted mineralization zones to obtain repeatable estimates of gold grade where coarse gold grains are present.

6.

Continue exploration for potential bulk minable tonnage deposit(s) based on including lenses or ore shoots of gold-quartz veins with subparallel sheeted and stockwork quartz vein systems and metasediment-hosted disseminated gold mineralization.

7.

Expand the regional exploration program to include gold occurrences between Myrtle Creek on the west and the Middle Fork of the Chandalar River on the east.  Continue to evaluate the numerous outlying gold-quartz prospects and unevaluated shear zones throughout the district, particularly under the sediment cover in the north part of the district.

During 2009, we completed the placer gold test mining operation on Little Squaw Creek as was recommended in Mr. Barker’s April 15, 2009 technical report, and explained in the Test Mine Operations for 2009 section of this document below. Some exploration of the various other placer gold creeks on the Chandalar property took place. A small amount of prospecting work on the hard rock gold deposit possibilities was accomplished. That work led to some key understandings of the geology. It also generated an internal Company memorandum by Mr. Barker proposing an exploratory diamond drill program of about 38 drill holes aggregating 20,000 feet. Map 4 shows the proposed lay out of the drilling, which is designed to test for large low-grade bulk mineable gold deposits. It would evaluate the degree of mineralization occurring as a large strata-bound unit nearly 5 miles in length, as explained Interpretation of Exploratory Findings at Chandalar section of this document above. We anticipate this proposed drilling plan would require a budget of approximately $1.2 million.

Exploration of the Chandalar Little Squaw Creek Alluvial Gold Deposit

During 2006, independent placer mining consultant Mr. Jeff Keener identified three targets in the vicinity of our exploration camp that may contain significant resources of placer gold: Little Squaw Bench, Spring Creek, and Big Squaw Creek. The most significant is the Little Squaw Creek, where early day drift-miners produced 29,237 ounces of gold, according to our records. A reconnaissance drilling program by a former lessee in 1997 outlined what they called an “inferred resource” (i.e. mineralized material according to SEC guidelines) of a couple hundred thousand ounces of placer gold. (We note that this reference is not an SEC Industry Guide 7 compliant reserve.) This drilling basically found that the mineralization mined in the Bench extends from the Bench for a long distance down Little Squaw Creek. To the northwest of the Bench lies Spring Creek on which no previous prospecting is known to have occurred, but appears to be an old channel of Big Squaw Creek. The third target is the Big Squaw Creek drainage where early day placer gold hand-mining occurred on its upper parts, but is not known to have been productive on its downstream reaches.

For our 2007 exploration season, because we were unable to secure a core drill to advance our drilling program of hard rock prospects, we refocused our efforts on moving forward with the placer drilling plan for the Little Squaw Creek alluvial gold deposit. We implemented a rotary reverse circulation placer drilling program with the following objectives:

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·

First, to establish the approximate amount of mineralized material (unconsolidated gravel) in Little Squaw Creek,

·

Second, to set the stage for expanded placer gold mineralization drilling in adjacent drainages, and

·

Third, to complete the proposed 90-hole 13,000 foot program all according to recommendations of independent placer mining consultant Mr. Keener.

We contracted Metallogeny, Inc., Mr. Keener’s privately owned company, to independently perform the drill site sample collection and analyses of the 2007 placer gold drilling program, which was largely confined to the Little Squaw Creek target. Security of samples and quality control of the assaying work were addressed in the contract and strictly maintained. Metallogeny had exclusive possession of all borehole samples, thereby providing independent sample security from the time of borehole extraction through transport to their Fairbanks laboratory, including completion of the sample processing protocol.

Drill hole sampling and assaying of placer (alluvial) drill cuttings of gravels requires a meticulous procedure that differs substantially from normal fire and chemical assaying procedures used for rock and drill core samples. In our case, all of the drill cuttings for each five feet drilled were collected in five gallon buckets. It took about three of these buckets (partially filled) to contain one five foot sample, which amounts to 0.97 cubic foot for a five and seven eights inc (5 7/8”) diameter drill hole. The samples were then transported to a location where their volumes and mass are carefully measured, after which they are concentrated with a small, hydraulic screening/sluicing plant. The volume of oversize tails off the screen is measured in a graduated bucket and discarded. The reduced samples amount to less than two gallons, which are then carefully hand panned to a high-grade concentrate when colors of gold can then be counted and their mass estimated. The pan concentrates, approximately one to two hundred grams, were then transferred into a labeled ziplock bag for further detailed analysis in a laboratory. In the analysis, measured sample volumes are compared to theoretical volumes based on the drill tooling specifications. A correction factor was then derived for each sample. The recovery factor was used to adjust the gold grade for excessive or deficient amounts of sample material. This factor is also used to judge the integrity of the hole (i.e. collapse or blow-out) and overall recovery performance of the drilling system. The pan concentrates were then double-panned in a controlled environment or laboratory. All visible colors of gold are extracted, dried, counted, and weighed to the nearest milligram. A digital image of the sample was collected and labeled. The sample of gold was then placed in individual sample vials or combined with other samples for the same drill hole. Reject pan concentrates were saved for later amalgamation to test for lost values and to analyze for the heavy mineral suite. Empirical data were entered onto a spreadsheet, where formulas were created and used to calculate volume recovery, correction for swell and recovery, oregrade, and paygrade. Stratigraphic notes and other data about the drill hole were also entered onto the spreadsheet to create a complete log of the hole.

The rotary drill was mobilized to Chandalar over the winter trail in March 2007. Drilling started on June 18th and ended on September 16th. We drilled 113 holes for a total of 15,535 feet and took and processed over 3,100 placer gold drill samples. Twenty-five drill holes did not reach bedrock and were abandoned due to caving or ground swelling or were terminated at the full extent (210 feet) of the available drill rod The drill was de-mobilized to Fairbanks on September 23rd using a Hercules C-130 cargo aircraft.

On Little Squaw Creek, seventy-three drill holes intersected the “Pay Horizon” (the mineralized stratum of gravel from which significant or potentially economic quantities of gold can be recovered). Some of those holes did not completely penetrate it. The Pay Horizon thickness-weighted average recoverable gold grade for the 73 drill holes is 0.0247 ounces per bank cubic yard. This equates to $27,17 per cubic yard (yd3) over a thickness of 83 feet (28 yards) using the current gold price of about $1,100/oz (see Maps 5, 6 and 7 below). We believe the order of magnitude of drilled mineralized material exceeds 10 million cubic yards, and that the drill sample results confirm our opinion that we have discovered an industrial-scale placer gold deposit of potential commercial significance. Spatial limits and overall grade of the gold-bearing gravels containing the potentially economic Pay Horizon have not yet been determined. The placer gold deposit remains open for expansion in three directions. The detailed drill results are disclosed in our Form 10-K for the each year ended December 31, 2007 and 2008.

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Map 5 – 2007 Drill Hole Pattern in Little Squaw Creek Channel (Gulch) and Alluvial Fan

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All the drill lines are perpendicular to the water channel flow and linear direction of the gently northward sloping gravel deposits. The borehole pattern involved ten lines spaced 500 feet apart that cross the gravel Pay Horizon at right angles, with the holes drilled at 50- to 100-foot intervals along the lines. Substrate borehole samples were collected continuously every five feet and processed via a sophisticated sample-reduction process that recovers the native gold contained in the drill cuttings. A total of 3,110 drill samples were collected and processed as described above.

We believe our Little Squaw Creek alluvial gold deposit discovery is the first of its kind in Alaska. Our geologists characterize it as an aggradational placer gold deposit. Although unique in Alaska, many similar deposits exist in neighboring Siberia in what is known as the Central Kolyma Area where cumulative past production is said to be on the order of 77 million ounces. All other alluvial gold deposits in Alaska are commonly referred to as bedrock placer gold deposits. Aggradational alluvial gold deposits contain gold particles disseminated through thick sections of stream gravels in contrast to bedrock placer deposits where thin but rich gold-bearing gravel pay streaks rest directly on bedrock surfaces (see maps 6 and 7). Aggradational placer gold deposits are generally more conducive to bulk mining techniques incorporating economies of scale than are bedrock placer gold deposits.

The plan view of the Little Squaw Creek gold deposit (see map 5) shows it to be somewhat funnel-shaped. The deposit has been divided into two distinct geomorphological zones: a Channel (aka Gulch), or narrower portion, and a Fan, or apron portion. A thick paleo-Channel (Gulch) deposit of mineralized gravel is defined by drill lines 5 through 10 in the upper reaches of Little Squaw Creek. It is dammed by a subterranean band, or ledge, of erosionally resistant greenstone that it breached sometime in the past, disgorging itself northward to become a broad alluvial Fan (similar to a fossilized delta). This wide, thick fan of gold-bearing stream gravels is defined by drill lines 1.2 through 4, where it is buried under gold-barren glacial sediments. The Fan portion of the deposit averages 83 feet thick (28 yards) and it is overlain by glacial overburden (mud, sand and cobbles) containing sparse gold values that average 58 feet (19 yards) thick. The drilling results from lines 3, 4 and 5 also indicate that a younger gold-bearing stream channel possibly overlies the Fan along its east side. All these unconsolidated sedimentary strata lay on schist bedrock. The drilling does not define the limits of the Fan, nor of the overlying more recent channel deposits. The system of gold-bearing fan gravels is open to expansion to the north, east and west.

Map 6 – Example of Little Squaw Creek Drill Hole and Gold Recovery Cross Section across the Alluvial Fan

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Independent Study of Chandalar Alluvial Deposit

In February 2008, we received the final drill results from our placer gold drilling on Little Squaw Creek, Spring Creek. The complete results confirm our opinion that we have discovered an industrial-scale placer gold deposit of commercial significance on the Little Squaw Creek. Based on our drill data we commissioned a study to determine the amount of mineralized material contained in our alluvial gold deposit on Little Squaw Creek, we retained Mr. Paul Martin to do this. Mr. Martin is a consulting, Nevada state licensed and registered mining engineer who has Alaska placer gold mining expertise

In an internal letter memorandum dated February 9, 2009 and titled “Mineralized Material Estimate and Data Analyses for Little Squaw Creek, Chandalar Project, Alaska”, Mr. Martin reported to us that his calculations show the Little Squaw Creek alluvial deposit to contain an estimated 10.5 million bank cubic yards (bcy) of  “in place” material having an average grade of 0.0246 ounces of gold per bank (in place) cubic yard. He further reports that the total amount of unmineralized material that would need to be removed to access the mineralized material is about 9.3 million bcy; making for an overburden to mineralized material strip ratio of 0.89 to 1.00. These estimates were prepared by using the cross-sectional method as described in detail in the Society of Mining Engineering Handbook, Volume 1, pages 350 to 353.

Map 7 – Example of Little Squaw Creek Drill Hole and Gold Recovery Cross Section across the Channel (Gulch Portion)

These results were based on a detailed data analysis of the Little Squaw Creek Alluvial Deposit performed using Gamma Design software called GS+, which is a geostatistical analysis program that allows one to measure and illustrate spatial relationships in geo-referenced data. The analysis included basic statistics, semi vairograms, multi variant evaluation of grade thickness and grade time thickness distributions to verify the lithologic continuity of grade

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and thickness for the Little Squaw Creek Alluvial Deposit within the surface mine plan limits. The Semi Variograms indicated a continuity of data up to 250 feet on both sides of the Sections.

A total of 93 reverse circulations drill holes, 7,034 total feet of pay gravel and 1,407 five foot composited samples were utilized in the data analysis. Gold fineness used was 870. The drill holes in the database were holes that fall within the alluvial deposit open pit mining limits as designed by Mr. Martin, including holes located in the 45-degree pit high-wall. The grade data was de-clustered by using the weighted average grade for the total drill hole Mineralized Material and the average Mineralized Material thickness for each drill hole. The average thickness of Mineralized Material per hole (for all holes) is 82 feet and overburden is 50 feet. The mean grade for the total drill hole database (average of all drill hole grades per section within the mining limits) totaled 0.0262 fine gold ounces per bank cubic yard (bcy), which compares within 6 percent to the total estimated resource grade for this report of 0.0246 ounces fine gold per bcy within the mining limit.

Since Mr. Martin’s analyses, we have determined by our 2009 test mining operation that the raw gold in Little Squaw Creek has a purity, or fineness, of about 850, and not the 870 used in his study. This being the case, the overall grade of the deposit decreases from 0.0246 to 0.0240 ounces of fine gold per bank (in-place and compacted) cubic yard. The loss of 0.0006 ounces per cubic yard does not have a material effect on our promising outlook for the mining economics of the deposit. We have traced the purity error to an ISO certified international assay laboratory in Fairbanks, which we have ceased to use.

It is management’s opinion that we have discovered a promising alluvial gold deposit. We have defined an estimated 10.5 million bank cubic yards (bcy) of near-surface gold-bearing gravels (mineralized material) where we believe economies of scale could be gained that are typical of surface bulk-mining operations elsewhere. We also believe the deposit can be substantially expanded through additional drilling. We note that mining this alluvial gold deposit would not require the use and permitting of milling and chemicals in the gold recovery process because raw gold could be obtained by use of simple gravity separation recovery methods that are standard to processing gold bearing alluvial gravels. In making these statements, we do not purport to have a U.S. Securities and Exchange Industry Guide 7 compliant mineral reserve at Chandalar. Mr. Martin recommended continuing our drilling program.

Test Mine Operations for 2009

On May 6, 2009, our Board of Directors approved a limited mining plan for the alluvial gold deposit on Little Squaw Creek on our Chandalar property and authorized management to enter into forward gold sales contracts for a total of up to 1,500 ounces of alluvial gold produced at our Chandalar property to fund the mining operation.

Permitting

We received a permit from the Alaska Department of Natural Resources to test mine and process mineralized gravel to determine engineering, water, and other criteria before undertaking a commercial-scale operation. Approximately 20,000 yds3 of overburden were planned to be removed to reach the deposit. We also received a water course diversion permit from the U.S. Army Corps of Engineers and a waste water discharge permit from the U.S. Environmental Protection Agency (EPA).

Water Rights

We retain valid water rights (ADL 403439) for the use of 3,000 gallon per minute (gpm) specifically for placer mining.  Water can be diverted between April and October from any of the local streams for this use.  Other additional rights are held for lode mining use. The placer water rights are adequate to support a mining operation many times the size of our 2009 test mining. The water use system for washing gold out of the stream gravels is a closed circuit system. Most of the time during mining operations, water consumption consists only of make-up water necessary to cover ground seepage, evaporation and other loses in the settling (or retention) pond.  Except in certain circumstances, such as thunder storms, there is no discharge from the settling pond from which water is continually re-cycled. Any overflow is discharged in compliance with our EPA permit.

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Map 8.  Plan View of Little Squaw Creek Placer Mine Area.

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Access and Camp

We maintain a 4,400-foot long airstrip about 1.5 miles north of the proposed project.  The airfield is suitable for multi-engine aircraft up to C-130 class and is connected to the camp via an improved all-weather mine road. Camp facilities include ten frame tents with plywood floors, several older house trailers left by previous operators, a frame office building on skids, a couple of mobile sleeper units, and an older cabin built by lessees in the 1950’s.  In 2009, the placer mining crew consisted of five equipment operators, mechanic, general manager, geologist, sampler, camp hand, and a cook.  With visitors, up to fourteen people were accommodated at camp.  Fuel was delivered by DC-6 aircraft and stored in a small tank farm at the airstrip.  Based on the results of the 2009 bulk sample test, and contingent on available funds, some additional equipment and supplies will be moved to the site via the Chandalar winter trail from Coldfoot in early spring of 2010.  The mine test site is characterized by a stream incised into deep valley alluvial fill where there are no bedrock exposures.

Development Plan

A water diversion dam was built at a site approximately 650 feet upstream of the proposed test pit and armored with boulders. The dam diverts Little Squaw Creek into an old ditch (Map 8) that traverses the right limit hill side for about 1,850 feet and thence into Pioneer Gulch from where it flows about 700 feet to rejoin the Little Squaw Creek channel.   Pioneer Gulch is deeply incised and armored with coarse gravel and boulders, and supports a thick growth of alder and willow.  The old ditch required cleaning of accumulated sediment, which was done with a combination of the dozer and excavator, and deepening to handle an unusual storm event beyond any event in evidence or witnessed during the last seven years.

Map 9 - Cross-Section of Test Mine and Mine Bulk Sample Pit

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Overburden removal was done by dozer and pushed downstream to first form dam with a a retention pond for re-cycled wash water (i.e. silt settling pond), and later pushed into a pile for re-contouring the pit during reclamation.  During development of the pit, a portion of the underlying low-grade material was processed through the wash plant to fine tune its operations, with the balance set aside as best possible to be processed at a future date and then used to re-contouring the pit during reclamation.  The retention pond capacity was about a third of a million gallons and was at an elevation somewhat lower than the top of the pay gravel section and received and retained drainage from the pit.  The existing mine road that provides access to the rest of the district was re-routed higher on the left limit, west slope of the creek.  An area of pay gravel about 80 feet wide and 150 feet long was exposed by development work.

Map 10 – Sample Progression in Test Mine Pit Floor

Surface Disturbance

Total disturbed area for the mine pit and higher benches encompassed an area about 225 X 300 feet, about 1.5 acres.  The settling pond disturbed an additional 2 acres and tailings placement covered an additional one acre.  The diversion ditch has been in existence for more than 45 years and includes an area about 20 feet wide by 1,850 feet long that was previously disturbed (Figure 3).  Cleaning and re-shaping of the ditch disturbed an additional 10 to 12-foot-wide path and thereby 0.5 acres was involved.  All of the above disturbances totaled approximately 5 acres.

Reclamation

Approximately 1,200 feet of old exploration trenches were reclaimed during the quarter ended September 30, 2009.  No reclamation was done at the mine site so as not to restrict access to exposed pay gravels.  It is intended that reclamation in the future be done such as to place the un-processed lower grade material into the mine pit in

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anticipation that the entire auriferous gravel section to bedrock will be eventually mined by low-cost bulk mining techniques.  Thereby, low-grade material below the 2800 level bench will be preferentially pushed in as pit-fill to expose the higher-grade gravel for processing in 2010 or later, if this is found to be feasible.  Mostly barren upper sediments will be distributed as surface cover.  Wash plant tailings stacked on the right (east) limit of the stream during mining will be contoured and partially spread over fine-sized settled sediment in the retention pond to prevent erosion.  If future mining appears to be unwarranted at this site the retention dam and ditch diversion will be re-contoured. These structures were partly breached and stabilized until the 2010 mining season.

Mining Budget

The originally projected cost estimates and actual expenditures for the 2009 alluvial gold test mining program was about $870,000. The final cost of the program was approximately $1,137,000. This variance resulted from our taking of an unusual opportunity to cheaply acquire a wash plant that is twice the size of that we originally intended, and the modification and transport costs associated with it. Acquiring and testing (shake-down) this larger than planned wash plant in 2009 has pre-positioned us to rapidly move into commercial production in the 2010 mining season. We believe the financial risk incurred with our decision to opportunistically up-scale the wash plant was timely and handsomely beneficial given the success of our test mining program.

Results of Test Mining Operation

On October 6, 2009, we reported the successful completion of our 2009 alluvial gold mining test. The pilot program involved a full-scale mining test that produced approximately 594 ounces of placer gold. The test mining yielded valuable geologic, mining and engineering data and gold recovery characteristics that will enable the Company to ramp-up the project into commercial production in the spring of 2010. The mining objectives of the pilot operation were completely fulfilled. Additionally, a fully operational wash plant capable of commercial scale production now stands ready on site.

Overburden stripping of the Little Squaw Creek test mining site began on schedule in the last week of June 2009. Approximately 20,000 yards of overburden were removed, and about 5,000 yards of it containing low-grade gold values were processed through the gold recovery plant in an initial commissioning phase during which approximately 71 ounces of raw gold were recovered. The targeted mineralized material, or “pay zone”, was exposed for mining by August 25th. Approximately 8,900 cubic yards from the “pay zone” were then run through the plant from which approximately 522 ounces of “raw” placer gold were recovered, bringing the total recovery to approximately 594 ounces. Mining and processing operations were shut down for the season on September 12th with the onset of freezing conditions. Production details are shown in the table below.

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The fineness, or purity, of the raw gold produced has been determined to be about 84 fine (84% pure gold with most of the remainder being silver), which would be equivalent to a production of 498 ounces of pure gold. The relatively coarse nature of the gold together with minimal associated heavy black sands made for nearly ideal gravity recovery conditions. Based on panning tests of the tailings, management believes that at least 98% of the gold in the processed material was recovered. Production rates while in the “pay zone” varied between 4 and 11 ounces per hour, averaging 5.2 ounces per hour of wash plant operation.

Our wash plant capacity was underutilized. Although the wash plant is capable of a sustained through put of 160 cubic yards per hour, mining equipment limitations capped it at slightly less than 90 yards per hour. More and larger earth moving equipment is needed to maintain an optimal feed rate to the plant, and to capitalize on the economies of scale. Purchase of a haulage truck(s), another front-end wheel loader and tracked excavator can substantially raise production levels, and increase the grade of the “pay dirt” feed to the plant by avoiding dilution caused by pushing it to the plant with dozers.

Gold production from the test pit was lower than it otherwise would have been because of the presence of old drift mine workings (tunnels) encountered in the “pay zone”. No records exist of these previously unknown workings, estimated to be 90 years old. Extensive exposure created by the new mining activity indicates the old workings are of limited scale and confined to certain areas in the upper reaches of Little Squaw Creek which lie mainly outside of the previously drilled area.

Sustaining constant daily plant operation proved to be the greatest challenge, and the principal factor that inhibited gold production. The allowable daily operating time of the plant was determined by the quality of the re-circulated settling pond water. Fine particles generated by washing dirt from the rocks would “slime up” the pond to a point where it caused processing problems in the plant by plugging up the pumps and water jets. Additionally, the emulsification of the water resulted in an increased density medium prone to carry the fine gold and inhibiting its capture in the sluice boxes. Upon reaching such a condition, the plant was shut down until such time as the silt sized waste material precipitated in the pond. This constrained plant operating to between 4 and 6 hours per day. This problem can be resolved by constructing larger production-scale settling ponds where there is ample space to do so further downstream from the mine.

The Company has drawn some important conclusions from the mining test:

·

Clean gold recovery is easily achieved.

·

Contamination or dilution of the gold concentrate by heavy black sands will not be a problem.

·

The plant was properly designed and works well.

·

Sustained production of 5 to 10 ounces gold per hour with the current plant and mining equipment can be achieved.

·

Sustained hourly gold production can be increased to an estimated 15 to 20 ounces per hour by marginally  upgrading and expanding the mining fleet.

·

Larger settling ponds and the use of flocculants to precipitate the silt will significantly reduce the “slime” problem.

·

The “pay zone” and most of the overburden are not frozen; only about 12 feet of weak surface frost needs to be contended within the targeted mining area.

·

The gravel to be mined is compacted, with the result that the open pit walls stand very well, nearly vertical, eliminating the need for shallow angle wall lay backs which increase the stripping volumes.

·

Substantial amounts of mineralized material, or “pay dirt”, lie within or under the current pit and are ready to be mined, eliminating the need for 60-70 feet of start-up stripping in the coming year.

·

The “pay zone” is exposed in two side walls of the pit, and remains an open ended mining opportunity.

·

A spring definition drilling program is needed to properly advance overburden stripping.

·

The scale of the operation should be ratcheted up to include larger stripping equipment.

·

 A second plant of comparable or larger size can be initiated and operated simultaneously further down Little Squaw Creek in order to take advantage of a single dedicated stripping crew and to maximize production within a relatively short operating season.

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·

A commercial placer gold mining operation is attainable with the current mine set-up, and can be improved and expanded with equipment additions.

Management believes that we have effectively negotiated a steep learning curve in putting an important mining operation together in arctic Alaska. We believe the toughest part of getting started is behind us. Most of what is needed for a fast seasonal re-start of gold mining is in place. Substantial sunk start-up costs have been made in camp, equipment, plant, fuel, tools, hardware and consumable supplies, airfield and the pre-stripping. Renewed operations can be mobilized by winter haul road, instead of incurring relatively expensive air freight cost as we did this year.

The Company was successful in extracting sufficient gold to meet the contractual distribution of approximately 300 ounces of raw placer gold by November 1, 2009 which was contracted under gold futures sales agreements entered into in 2009 to fund the 2009 test mining.  The Company has additional contractual obligations for distributions of approximately 990 ounces of raw placer gold due on or prior to November 1, 2010.