PRELIMINARY CAPITAL and OPERATING COSTS ESTIMATE, LAC OTELNUK IRON PROPERTY Adriana Resources Inc

GM 62813 PRELIMINARY CAPITAL AND OPERATING COSTS ESTIMATE, LAC OTELNUK IRON PROPERTY Adriana Resources Inc. Lac Otelnuk Iron Property Preliminary Capital and Operating Costs Estimate Met-Chem's Reference No.: 26004-2

GM 62813

u fibtliFdUee et Faune, Québec

2 8 FEV. 2007

Service de la Géoinformation

Adriana Resources Inc. Lac Otelnuk Iron Property Preliminary Capital and Operating Costs Estimate

Prepared for:

Adriana Resources Inc. 701 West Georgia Street Suite 1818 Vancouver, British Columbia V7Y 106

Prepared by:

Met-Chem Canada Inc. 555, boul. René-Lévesque Ouest, 3e étage Montréal (Québec) H2Z 1B1

Prepared by: Date: 2 Lionel Pou ' , Eng. General Manner — Projects ~za 137-4-

Date: Mary J Buchanan, Eng., M. Env. Senior nvironmental Engineer

Date: Rock Gagnon, Eng. Senior Metallurgical Engineer

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Adriana Resources Inc. Lac Otelnuk Iron Property — Preliminary Capital and Operating Costs Estimate

Date: — Ga`ran Gagnon, Eng. Senior Mining Engineer

Date: ~ Charles Cauchon, Eng. Senior Process Engineer

â Date: ngne. Senior Estimator

Approved uy ' aucier, Eng. Ge eral Manager, Corporate Development ala4 37fo

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Adriana Resources Inc. Lac Otelnuk Iron Property Preliminary Capital and Operating Costs Estimate Page i

TABLE OF CONTENTS

EXECUTIVE SUMMARY 1.0 INTRODUCTION 1 1.1 General 1 1.2 Background 1 1.3 Scope of Work 2 1.4 Basis of Study 3 1.5 Currency 4 2.0 DISCLAIMER 5 3.0 PROPERTY LOCATION AND ACCESS 6 4.0 GEOLOGY, MINERAL RESOURCES AND MINING 8 5.0 CONCENTRATOR 9 5.1 Metallurgy and Flowsheet Selection 9 5.2 Process Development and Plant Description 11 6.0 TAILINGS MANAGEMENT 16 6.1 Design Criteria and Assumptions 16 6.2 Tailings Storage Option 16 6.3 Spillways 17 6.4 Recommendations 17 7.0 PROJECT SITE INFRASTRUCTURE 18 7.1 Design Criteria 18 7.2 Offsite Access and Transport Infrastructure 18 7.3 Mine Infrastructure and Equipment 20 7.4 Site Infrastructure and Equipment 20 7.5 Electrical Power Supply 23 7.6 Administration 27 8.0 CONCENTRATE TRANSPORTATION 29 8.1 Pipeline 29 8.2 Railway Transport 32 9.0 PELLET PLANT 35 9.1 Design Criteria 35 9.2 Plant Mass Balance 35 - 9.3 Slurry Reception 38 9.4 Filtering 38 9.5 Cake Mixing 38 9.6 Balling 38 9.7 Indurating 39 9.8 Auxiliary Systems 41 9.9 Pellet Handling 43 -- 10.0 PORT AND SHIPLOADING FACILITIES 44 10.1 Design Criteria 44 10.2 Infrastructure 44 10.3 Design Consideration 44 10.4 Marine Structures 44 10.5 Materials Handling 46 10.6 Options for Future Consideration 46 10.7 Service Vehicles 46 10.8 Diesel and Bunker Fuel 46

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11.0 ENVIRONMENT CONSIDERATIONS 47 11.1 Introduction 47 11.2 Environmental Authorizations Requirements 47 11.3 Preliminary Potential Impacts 51 12.0 PROJECT IMPLEMENTATION SCHEDULE 55 12.1 Summary 55 12.2 Exploration 55 12.3 Environmental Aspects and Permitting 57 12.4 Permits for Construction 57 12.5 Engineering, Procurement and Construction 57 12.6 Production 58 13.0 CAPITAL COST ESTIMATE 59 13.1 Summary of Estimate 59 13.2 Scope of Estimate 61 13.3 Basis of Estimate 62 13.4 Exclusions 65 14.0 OPERATING COST ESTIMATE 66 14.1 Summary of Estimated Operating Costs 66 14.2 Basis of Estimate 67 14.3 Mine 67 14.4 Concentrator 67 14.5 Tailings 69 14.6 Lac Otelnuk Administration 69 14.7 Pipeline 70 14.8 Railway 70 14.9 Pellet Plant 71 14.10 Port and Shiploading 72 14.11 Sept-Ï1es Administration 73 14.12 Site Restoration 73 15.0 DISCUSSION 75 15.1 Mineral Resources and Mining 75 15.2 Ore Beneficiation 75 15.3 Pipeline Concentrate Transport 76 15.4 Railway Concentrate Transport 76 15.5 Pellet Plant, Port and Shiploading 76 15.6 Environmental Considerations 76 15.7 Project Implementation Schedule 77 15.8 Electrical Power Supply 77 15.9 Other Perspectives 77

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List of Tables

Table 1.1 — Historic Mineral Resources Estimate 2 Table 5.1 — Lac Otelnuk Concentrator Mass Balance Summary 12 Table 9.1 — Material and Water Balance at 10 Mtpy 42 Table 11.1 — List of First Nations and Location 50 Table 13.1 — Summary of Capital Cost Estimate 60 Table 14.1 — Summary of Operating Costs 66 Table 14.2 — Process Plant Operating Costs for 10 Mtpy of Concentrate 68 Table 14.3 — Process Plant Operating Costs for 15 Mtpy of Concentrate 68 Table 14.4 — Process Plant Summary Manpower 68 Table 14.5 — Lac Otelnuk Site Administration Costs 70 Table 14.6 — Pipeline Operating Costs 70 Table 14.7 — Pellet Plant Operating Costs (Acid Pellet) 71 Table 14.8 — Pellet Plant Manpower Summary 72 Table 14.9 — Port and Shiploading Costs 72 Table 14.10 — Sept-lies Administration Costs 73

List of Figures

Figure 3.1 — Location of the Property 7 Figure 5.1 — Flowsheet 10 Figure 7.1 — Lac Otelnuk General Site Layout 19 Figure 7.2 — Hydro-Québec Power Stations 25 Figure 8.1 — Proposed Pipeline Routing 30 Figure 8.2 — Proposed Railway Routing 33 Figure 9.1— Typical Plant Layout 36 Figure 9.2 — Pellet Plant Mass Balance 37 Figure 10.1 — Port Facilities Typical Layout 45 Figure 12.1 — Project Schedule Studies 56

List of Appendices

Appendix A —Previous Metallurgical Testwork Appendix B — Material Balance for HPGR 10 Mtpy Appendix C — Concentrator Operating Costs Appendix D — Pipeline Operating Costs Appendix E — Pellet Plant Manpower

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GLOSSARY

List of Abbreviations Acid Rock Drainage ARD Adriana Resources Inc. Adriana Bedford Resource Partners Inc. Bedford Canadian dollar SCAD Canadian Environmental Assessment Act CEAA Canadian Environmental Protection Act CEPA Commission de la qualité de l'environnement CQEK Kativik Cubic meter m3 Cubic meter per hour m3/h Davis Tube DT Davis Tube Weight Recovery DTWR Dead Weight Tonnage DWT Direct Reduction DR Environmental Assessment Agency CEEA Environmental Effect Monitoring EEM Environmental Effects Monitoring Studies EEMS Environmental Impact Assessment EIA Environmental Impact Statement EIS Environmental Quality Act EQA Government of Québec GQ Gram per liter g/L Grams g Grams/tonne or parts per million g/t Hectare ha High Pressure Grinding Rolls HPGRs Horsepower hp Impact Benefit Agreements IBA James Bay and Northern Québec Agreement JBNQA Journeaux, Bédard & Assoc. inc. JBA Kativik Environmental Quality Commission CQEK Kilogram per liter kg/L Kilograms kg Kilometers km Kilovolt kV Kilowatt kW

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List of Abbreviations (Cont'd) Kilowatt per hour per tonne kWh/t King Resources Company King Lakefield Research Limited of Canada Lakefield Liter per hour L/h Long Ton Lt Megawatt mW Megawatt per hour per day mWh/d Metal Mining Effluent Regulation MMER Metals, Petroleum, Sr. Hydraulic Resources later MPH Consulting Limited Meters m Metric tonnes Tonnes or t Microns µm Milligram per liter mg/L Million of cubic meter Mm3 Millions of metric tonnes Mt Millions of metric tonnes per year Mtpy Ministère des Resources naturelles et de la Faune, MRN Service du développement et du milieu miniers Ministry of Sustainable Development, Environment MSDEP and Parks National Energy Board NEB National Instrument 43-101 NI 43-101 Parts per million, parts per billion ppm, ppb Percent Weight Recovery %WtRec Phoenix Resources Company Phoenix Québec North Shore and Labrador Railway QNS&L Return on Equity ROE Run of Mine ROM Specific gravity s.g. Square meter m2 Tonnes per cubic meter t/m3 Tonnes per day tpd Tonnes per hour tph Tonnes per month tpm Tonnes per year tpy US dollar SUSD

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List of Abbreviations (Cont'd) Volt V Watts, Griffis and McQuat Limited WGM Weight Recovery % WR %

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EXECUTIVE SUMMARY

Background, Scope of Work and Basis of Study

The present report presents a preliminary assessment of the capital and operating costs of the Lac Otelnuk Iron Property project owned by Adriana Resources Inc. (Adriana). This estimate is to be part of a Scoping Study to be completed at a later date once the results of the 2006-2007 exploration programs are available and an estimate of mineral resources compliant with Canadian Securities Administrators National Instrument 43-101 (NI 43-101) is completed.

In early December 2005, Adriana concluded an Option Agreement with Bedford Resource Partners Inc. (Bedford) whereby it could earn a 100% interest in the Lac Otelnuk Iron Property located in northeastern Québec. The Bedford property consists of 129 mining claims totalling _ 6,219 hectares in area. Earlier in the fall of 2005, Adriana had map-staked an additional 471 claims contiguous to the Bedford claims.

Prior to the completion of the agreement with Bedford, Adriana had retained the services of Watts, Griffis and McQuat Limited (WGM) to perform a technical review of the Lac Otelnuk property. A NI 43-101 compliant report dated November 24, 2005 and documenting the technical review was issued by WGM. The report essentially includes a review of published documentation from Québec Government sources including geological publications as well as filed assessment reports from previous owners of mining rights on the property.

Initial exploration work on the property is reported to have taken place in 1948. However, the bulk of the exploration and metallurgical testing activity work was carried out between 1970 and 1977 under King Resources Company (King) who had staked the property. King engaged Metals, Petroleum, & Hydraulic Resources Consulting Limited (later MPH) of Toronto to manage the iron property investigation program.

During that period, historic "mineral resources" estimates were prepared and are summarised in the following table: Historic Mineral Resources Estimate

Zone Long Tons Tonnes Magnetic Soluble Iron Formation (rounded) Fe % Fe A Thickness* North 613,600,000 623,000,000 25.08 33.92 50 ft (15 m) South 1,126,600,000 1,145,000,000 25.76 33.06 100 ft (30 m) * Average true thickness, as reported by MPH, used in preparing the estimates. Note: Historically, tonnages for iron deposits were reported in long tons and this was the case for Lac Otelnuk. WGM has converted long tons to metric measure using a factor of 1.016 long tons = 1 tonne and rounded the resulting tonnages to reflect their uncertain nature.

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As stated in the WGM report, "These historic "mineral resources" were prepared prior to the implementation of NI 43-101. WGM has neither audited these estimates nor made any attempt to classify them according to NI 43-101 standards or the Council of the Canadian Institute of Mining, metallurgy and Petroleum definitions (CIM Standards). They are presented because Adriana and WGM consider them to be relevant and of historic significance. These estimates should not be relied on."

In late February 2006, Met-Chem Canada Inc. (Met-Chem) was retained by Adriana to produce a Scoping Study of the Lac Otelnuk Iron Property. As relevant data to produce a NI 43-101 compliant mineral resource estimate (required for the Scoping Study) would not be available before the Fall of 2007, the scope of the current study was subsequently reduced to a preliminary technical design and preliminary capital and operating costs estimate of all areas not dependent upon the mineral resource estimate.

The present study is based on the assumption that an open pit mine and concentrator operation will be constructed at Lac Otelnuk together with the required tailings disposal works and site infrastructure. The concentrate produced will be transported (by pipeline or railway) to Sept-Îles where a pellet plant and shiploading facilities will be constructed at a location to be subsequently determined.

The technical review and annual capacities considered for the base case are approximately 29 million tonnes of ore generating 10 million tonnes of concentrate to produce 10 million tonnes of pellets. Cost estimates are also to be prepared for a second option producing 15 million tonnes of concentrate from approximately 43 million tonnes of ore and equivalent pellet production of 15 million tonnes per year.

Property Location and Access

The Lac Otelnuk Iron Property is located is the Province of Québec about midway north in the Labrador Trough iron range. The property is situated approximately 165 km in a straight line northwest of the village of Schefferville near the border with Labrador. Schefferville is located approximately 1,200 km northeast by air of Montréal.

There is no road access to the property. Several lakes on the property are accessible by air from Schefferville. Access to Schefferville is either by daily flights to Sept-Îles and then to Québec City and Montréal or by weekly round-trip train service for passengers and freight to and from Sept-Îles.

Geology, Mineral Resources and Mining

Geology, mineral resources and mining are not covered in the present report since at the time of writing, there has not been an updated resource estimate prepared to NI 43-101 standards or CIM standards.

In its report dated November 24, 2005, WGM indicates that the Otelnuk deposits are composed of iron formations of the Lake Superior taconite-type.

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Concentrator

Metallurgical testwork on the Lac Otelnuk deposit was done during the 70s and early 80s. The main conclusion that came from these testwork programs is that the iron ore from Lac Otelnuk can be processed with a comminution circuit that also includes low intensity magnetic separation. Fine grinding at 80% finer than 38 microns is required to achieve a good concentrate of 68.5% Fe with silica content of approximately 4.5%. The weight recovery averaged around 35%, while the soluble Fe recovery varied from 75% to 80%.

A preliminary flowsheet was developed for the present study base case production of 10 million tonnes per year of concentrate. It incorporates primary gyratory crushing, secondary cone crushing, primary grinding with high pressure grinding rolls (HPGR), rougher magnetic separators with ball mills, finisher magnetic separators, concentrate dewatering and tailings dewatering and disposal.

Crushing will involve one primary gyratory crusher and three secondary cone crushers reclaiming -200 mm (8") crushed ore from a 25,000 tonnes surge pile. The cone crushers will discharge -63 mm (21/4") size or on a 175,000 tonnes capacity stockpile ahead of the concentrator. From there onward the ore will be processed through three parallel lines of equal capacity each containing the equipment to produce a combined total of 10 million tonnes of concentrate.

Tailings Management

A preliminary assessment of tailings disposal requirements was performed. The tailings storage -- requirements were based on the production of 560 M tonnes of inert mill tailings over 20 years based on a production rate of 15 M tonnes of concentrate per year.

Two (2) tailings storage options, Concession and Adanys, were considered in this preliminary evaluation. The Concession option located west of the future mining operations was retained for the cost estimates of this report.

Project Site Infrastructure

A 175 km all weather gravel access road will be constructed to connect Schefferville to the Otelnuk mining camp site. If the railway option is retained for the transport of concentrate from the Otelnuk concentrator to Sept-Îles, rail yard and related facilities for the reception of supplies will be constructed. A 2,350 m long gravel landing strip will be built.

A camp complex including accommodations, cafeteria and recreational facilities will be erected upwind from the concentrator. It will initially accommodate construction workers and afterward site employees and guests after start up of operations.

A mill complex will be constructed and include the concentrator, administration, safety and environment, infirmary, technical support, operation personnel offices, change house, warehouse, mine garage and general maintenance shops. Other site infrastructure will include

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fresh water supply pump house, sewage treatment plant, steam plant, fuel tank farm, incinerator plant, concrete cement plant, aggregate plant.

Electrical power requirements for the Otelnuk project site have been estimated respectively at some 105 MW and 160 MW for the production of 10 and 15 million tonnes of concentrate per year. Electrical power supply will be from a 315 kV line to be constructed between the Hydro- Québec Brisay power station located some 240 km to the southeast of to the Otelnuk project site. Otelnuk power distribution between the various locations will be at 34.5 kV. Emergency diesel generators will be installed at the concentrator. Power to the pipeline booster pumping stations will be supplied by diesel generators installed at each station. Power supply to the Sept-Îles pellet plant and port installations will be from the existing Hydro-Québec grid at 161 kV.

The company's administration offices will be located in Sept-Îles in a dedicated building near the pellet plant.

Concentrate Transportation

Two options were considered to transport the iron ore concentrate from the Lac Otelnuk concentrator to the pellet plant in Sept-Iles. One is a slurry pipeline and the second one is transportation of dewatered concentrate by train.

The concentrate transportation option by pipeline is based on the construction of a 695 km pipeline between the concentrator at Lac Otelnuk and the pellet plant located in Sept-Îles. The routing of the pipeline is entirely within the limits of the province of Québec and stays clear of the several protected areas identified in the region. Booster pumping stations are planned between the Otelnuk concentrator and the Sept-Îles pellet plant. A steel pipeline of 20 to 22 in. outside diameter depending on the required capacity has been selected. Provisions have been made for the insulation of the pipeline and a burial depth of 2 m has been considered.

Pellet Plant

- The pellet plant will be located on the Bay of Sept-Îles in an area with adequate space to accommodate: slurry reception from the pipeline, pellet plant and related facilities, stockyard and reclaim system and a deep water port and shiploading system. The base case pellet plant will be composed of 2 identical lines and will include: thickeners, slurry tanks, filtering equipment, cake storage bin, mixers, balling drums with roller screen, indurating machines and a common pellet screening, hearth layer and conveyor system. Each line will have a capacity of 5 million tonnes

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per year of acid pellets. Appropriate dust control equipment and induration process waste gaz cleaning equipment will be installed as required in the circuit.

The stockyard will include a slewing stacker and two reclaimers, both stradling a feed and reclaim conveyor running the length of the pellets stockpiles. Each parallel stockpile will be 750 meter long and have a capacity of one million tonnes.

Port and Shiploading

The port facility located in Sept-Îles will operate year round and accommodate ships up to 250,000 DWT. It will have a total loading capacity of 10,000 tonnes per hour.

The facilities will include a 10,000 tonnes per hour conveyor from the stockpiles to a 1,500 tonnes surge bin on the beach and from there on, two 5,000 tonnes per hour capacity lines including each a loadout conveyor, transfer conveyor and quadrant type shiploader.

Environment Considerations

The Otelnuk Iron Project will be subjected to Provincial (Québec) and Federal Environmental Assessments.

Under the Environmental Quality Act (Québec Ministry of Sustainable Development), the Project will have to address different mechanisms of authorization for the project.

The mining and concentrating activities of the Otelnuk Iron Project and part of the pipeline fall within the territory governed by the James Bay and Northern Québec Agreement (JBNQA). Several project components are expected to be subjected to this mechanism of authorization which involves the active participation of the Cree, Inuit and Naskapi communities. The Southern portion of the pipeline is expected to require a Certificate of Authorization under Paragraph 22 of the EQA. The pellet plant and the port facilities are expected to be subjected to the Environment Assessment Review Process for the Southern part of Québec.Federal laws and regulations that could have significant direct impact on the proposed project include the Canadian Environmental Protection Act (CEPA), the Canadian Environmental Assessment Act (CEAA) and the Fisheries Act.Preliminary potential impacts have been identified for the following components of the project: mine/concentrator site, concentrate transportation, pellet plant, stockpiling and shipping. Other potential impacts such as sanitary wastewater treatment, solid waste disposal and used oil disposal are also addressed.All environment related contacts, studies, applications for approval should be initiated in a timely manner.

Project Implementation Schedule

The schedule starts at the end of the first quarter of 2006, with the ongoing scoping study Phase 1 activities (Preliminary Capital and Operating Costs), and extends to the second half of 2015 when commercial production starts.

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Significant milestones are: Scoping Study completed at the end of the 3T8 quarter of 2007, Pre- Feasibility Study completed at the end of the 3rd quarter of 2008, Feasibility Study completed in early 2010, Environmental Studies and Assessment Process completed by mid 2010 with simultaneous submission of applications for permits and start of Engineering and Procurement activities, start of construction in early 2011 and start of production in second half of 2015.

Capital Cost Estimate

The capital cost estimate covers all areas of the project with the exception of the costs of the mine development, infrastructure and the mining equipment which will be developed once the updated mineral resources information and preliminary mine design are available.

The Capital cost estimates are shown in Canadian dollars ($CAD) and are based on prices for equipment, materials and salary rates accurate for the first quarter of 2006. The capital cost estimate is considered to have an accuracy of ± 30% with the exception of the pipeline for which it was not possible to achieve an accuracy better than ± 50% due to limited ground information available.

For the base case annual production of 10 Mtpy of pellets, the total capital cost is estimated at $3.9 billion or $3.0 billion respectively when pipeline or railway concentrate transportation are considered. The corresponding costs for an annual production of 15 Mtpy of pellets are respectively $4.6 and $3.7 billion.

A summary of the capital estimate is provided in the following table:

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Summary of Capital Cost Estimate

ET-CHER1 26004-2 SCOPING STUDY FOR LAC OTELNUK PROJE- C Capital Cost Estimate 07-juil-06

L) ) ~~ ICI I UUU - V 10MTPY 15MTPY Item DesçfiptiVn — u PIPELINE RAILWAY PIPELINE RAILWAY JJJJJJ OPTION OPTION OPTION OPTION DIRECT COST OFFSITE ACCESS AND TRANSPORT INFRASTRUCTURE $97 772 000 $97 772 000 MINE INFRASTRUCTURE & EQUIPMENT $0 $0 SITE INFRASTRUCTURE & EQUIPMENT $112 230 000 $114 209 000 CRUSHER $83 055 000 $137 514 000 CONCENTRATOR $197 711 000 $286 680 000 MINE SITE WATER SYSTEMS, Potable, Sanitary, Process, Fire $9 519 000 $12 045 000 TAILINGS $63 054 000 $78 958 000 SEE OPTIONS BELOW PELLET PLANT $597 331 000 $889 822 000 PORT INSTALLATION $175 537 000 $175 862 000 ELECTRICAL POWER SUPPLY $362 835 000 $362 835 000 SUB-TOTAL DIRECT COSTS $1 699 056 000 $2 155 710 000

CONCENTRATE TRANSPORT SYSTEM - PIPELINE $1 098 709 000 $1 136 791 000 TOTAL PIPELINE OPTION $2 797 765 000 $3 292 501 000

CONCENTRATE TRANSPORT SYSTEM - RAILWAY $433 563 000 $497 548 000 TOTAL RAILWAY OPTION $2 132 619 000 $2 653 258 000

INDIRECT COSTS

EPCM (12% of direct cost) $335 732 000 $255 915 000 $395 101 000 $318 391 000

Owner's costs $180 799 000 $151 961 000 $219 329 000 $194 051 000

Contingencies (20% of direct cost) $559 553 000 $426 524 000 $658 501 000 $530 652 000

TOTAL INDIRECT COSTS $1 076 084 000 $834 400 000 $1 272 931 000 $1 043 094 000

TOTAL COST $3 873 849 000 $2 967 019 000 $4 565 432 000 $3 696 352 000

Operating Cost Estimate

Estimated operating costs for the project have been developed for yearly productions of 10 and 15 million tonnes per year of concentrate at Lac Otelnuk and corresponding productions of 10 and 15 million tonnes of pellets at Sept-Îles. With the exception of mining, all areas of the project are covered.

Costs for concentrate transportation between the Lac Otelnuk concentrator and the Sept-Îles pellet plant are provided for a pipeline option and a railway option but only one of these options will ultimately be retained for the project after required trade off analysis is completed.

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A summary of the operating costs estimate for the project without mining is provided in the following table:

Summary of Operating Costs Base Case Alternate Option (Concentrate/Pellets at 10 Mtpy) (Concentrate/Pellets at 15 Mtpy) Description ($000,000)/year $/tonne pellets ($000,000)/year $/tonne pellets

Mine N/A N/A N/A N/A Concentrator 81.52 8.15 123.94 8.26 Tailings 0.70 0.07 1.10 0.07 Lac Otelnuk Administration 22.70 2.27 26.50 1.77 Pipeline* 51.50 5.15 54.56 3.64 Railway* 120.00 12.00 165.00 11.00 Pellet Plant 92.80 9.28 134.85 8.99 Shiploading 15.34 1.53 17.03 1.14 Sept-Îles Administration 6.20 0.62 7.40 0.49 Sub-total with Pipeline (Mining operating costs excluded) 270.76 27.08 365.38 24.36 Sub-total with Railway (Mining operating costs excluded) 339.26 33.93 475.82 31.72

* Only one of the 2 options will be selected for transportation of concentrate.

Discussion

The estimated capital costs for the project are very significant and further studies will be required to better define key components of the project. This section of the report addresses the major components of the project and offers some comments and recommendations:

• Mineral resources: NI 43-101 inferred mineral resources need to be defined to support the completion of a scoping study level economic assessment of the project.

• Ore beneficiation: confirmation metallurgical testwork is required to confirm the average grade (25% Fe) and weight recovery (35%) used in the present study as well as the selection of HPGR grinding over conventional SAG mill grinding.

Pipeline concentrate transport: at $1.1 billion represents 35 to 40% of the direct project capital cost. Will need to be better defined in future studies. Trades off studies comparing with railway option are required.

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• Railway concentrate transport: capital cost includes construction of line from Lac Otelnuk to Schefferville. No other upgrade or repair of existing lines is included. Studies required to compare with pipeline option.

• Environmental considerations: environmental approvals typically involve appreciable time before they are obtained. Consequently, environmental studies should be initiated as early as possible in the project schedule. Discussions, consultations and, if applicable, negotiations with First Nations representatives should be pursued during all phases of the project.

• Project implementation schedule: The estimated schedule indicates a duration of over 9V2 years to start of production. The construction of the access road to the Lac Otelnuk site from Schefferville is the critical path activity upon which all site activities are dependent. A more detailed look at site access will need to be carried out to identify means to reduce the construction time.

• Electrical power supply: Considering the magnitude of the project at Lac Otelnuk, power supply options should be further explored as discussed with Hydro-Québec to confirm the option retained for the present study or identify a more attractive alternative.

• Other perspectives: In view of the very high costs involved of constructing and operating concentrate transport infrastructure to a pellet plant in Sept-Îles, Adriana may want to consider studying the opportunity of building pelletizing and shiploading facilities in Northern Québec.

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1.0 INTRODUCTION

1.1 General

The present report presents a preliminary assessment of the capital and operating costs of the Lac Otelnuk lion Property project owned by Adriana Resources Inc. (Adriana). This estimate is to be part of a Scoping Study to be completed at a later date once the results of the 2006-2007 Phase 1 exploration program are available and an estimate of mineral resources compliant with Canadian Securities Administrators National Instrument 43-101 (NI 43-101) is completed.

Adriana is a junior exploration company based in Vancouver, British Columbia, Canada and listed on the TSX-V Exchange.

1.2 Background

In early December 2005, Adriana concluded an Option Agreement with Bedford Resource Partners Inc. (Bedford) whereby it could earn a 100% interest in the Lac Otelnuk Iron Property located in northeastern Québec. The Bedford property consists of 129 mining claims totalling 6,219 hectares in area. The terms of this agreement are available in an Adriana press release dated December 2, 2005. Earlier in the fall of 2005, Adriana had map-staked an additional 471 claims contiguous to the Bedford claims.

Prior to the completion of the agreement with Bedford, Adriana had retained the services of Watts, Griffis and McQuat Limited (WGM) to perform a technical review of the Lac Otelnuk property. A report dated November 24, 2005 and documenting the technical review was issued by WGM. This report was filed on SEDAR by Adriana on December 1, 2005 and is available for public review.

The WGM report format is compliant with NI 43-101 and covers all topics as prescribed by Form 43-101F for a Technical Report. The report essentially includes a review of published documentation from Québec Government sources including geological publications as well as filed assessment reports publicly available with the Ministère des Resources naturelles et de la Faune, Service du développement et du milieu miniers (MRN).

Previous work on the Lac Otelnuk property as documented by WGM includes exploration work reported initially in 1948 by Norancon Exploration (Québec) Limited, a Noranda/Cominco joint venture. The subsequent activity documented and described in the WGM report was carried out between 1970 and 1977 under King Resources Company (King) who had staked the property. King engaged Metals, Petroleum, & Hydraulic Resources Consulting Limited (later MPH) of Toronto to manage field work, metallurgical testwork, "mineral resources" estimates and economic studies. This activity included diamond drilling, mapping, bulk sampling and metallurgical testwork for the most part at Lakefield Research Limited of Canada (Lakefield) but also for limited work at a German laboratory. In 1981, further metallurgical testwork was carried out by

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Lakefield. This work was commissioned by MPH on behalf of Phoenix Resources Company (Phoenix) presumed to be a successor company to King.

In 1973, MPH published a "mineral resource" (historic) estimate for the North Zone based on drilling information available for the zone (31 holes totalling 1,348.6 m). Holes were roughly 2,000 ft apart along section lines spaced 4,000 ft over a strike length of 40,000 ft (12.2 km). In 1976, subsequent drilling in the South Zone (5 holes totalling 307.8 m) led to another "mineral resource" estimate qualified as "very speculative" by WGM. Relevant figures about those historic "mineral resources" estimates are provided in Table 1.1.

Table 1.1 — Historic Mineral Resources Estimate Tonnes Magnetic Soluble Iron Formation Zone Long Tons (rounded) Fe % Fe % Thickness North 613,600,000 623,000,000 25.08 33.92 50 ft (15 m) South 1,126,600,000 1,145,000,000 25.76 33.06 100 ft (30 m) * Average true thickness, as reported by MPH, used in preparing the estimates. Note: Historically, tonnages for iron deposits were reported in long tons and this was the case for Lac Otelnuk. WGM has converted long tons to metric measure using a factor of 1.016 long tons = 1 tonne and rounded the resulting tonnages to reflect their uncertain nature.

At the end of its report, WGM recommends a phased work program to Adriana to advance the project. This program includes field work, geological mapping and sampling, diamond drilling, metallurgical testwork, etc. and early-stage Scoping Study activities.

The present study is part of those early-stage Scoping Study activities.

1.3 Scope of Work

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The areas covered are:

• Concentrator; • Tailings Management; • Site Infrastructure (including roads, power supply, camp site, etc.); • Concentrate Transportation (pipeline and railway alternatives); • Pellet Plant; • Port Facilities; • Environmental Aspects; • Manpower; • Capital Costs Estimate; • Operating Costs Estimate; • Project Implementation Schedule.

The following areas were excluded from the original scope:

• Geology and Resources Evaluation; • Pit Design and Reserves Estimation; • Mining Development; • Financial Analysis.

Specialized firms assisted Met-Chem in the execution of the scope for the following areas are:

• Tailings Management: Journeaux, Bédard & Assoc. inc. (JBA); • Pipeline: Chinook Engineering Ltd.; • Railway: CANAC Inc.; • Port Facilities: Seabulk Systems Inc.

1.4 Basis of Study

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The technical review and annual capacities considered for the base case are approximately 29 million tonnes of ore generating 10 million tonnes of concentrate to produce 10 million tonnes of pellets.

Cost estimates are also to be prepared for a second option producing 15 million tonnes of concentrate from approximately 43 million tonnes of ore and equivalent pellet production of 15 million tonnes per year.

1.5 Currency

All prices and costs in this report are expressed in Canadian dollars ($CAD)

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2.0 DISCLAIMER

The present report is directed solely to the development and presentation of data and recommendations to permit Adriana Resources (Adriana) to reach informed decisions. While the study was performed by competent individuals, Adriana acknowledges that the Services of Met-Chem are advisory only and that Met-Chem disclaims any liability for losses, damages and claims which may result or be alleged to result from any application or use that Adriana and/or others may make of such data and recommendations provided by Met-Chem.

The disclosure or the use of this report to third parties for any reason and, any use or reliance on this report by a third party shall be at such third party's risk. This report was not prepared as per the NI 43-101 Technical Report standards and as such, cannot be filed by Adriana to any Canadian or foreign stock exchange or other securities regulatory authority. The results of the findings contained in the report will not be mentioned or referred to in any press release or public disclosure related to the Lac Otelnuk Iron property unless prior written approval of Met-Chem is given for such disclosure.

Adriana hereby waives releases and agrees to hold harmless, defend and indemnify Met- Chem from and against any and all liability for all losses, damages and claims by Adriana or any third party arising out of the report or the data and recommendations therein or as a result of any act or failure to act by Adriana or others based on such report, data and/or recommendations supplied by Met-Chem hereunder.

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3.0 PROPERTY LOCATION AND ACCESS

The following is essentially from the WGM November 2005 report.

The property is located in unsurveyed and unorganized territory and centered approximately at latitude 56°00'N and longitude 68°21'W. Figure 3.1 (from WGM Report) shows the location of the property.

There is no road access to the property. Several lakes on the property are accessible by air from Schefferville via chartered fixed-wing float or ski-equipped aircraft. Access can also be provided by helicopter ferried into Schefferville from Sept-Îles or Happy Valley — Goose Bay.

Access to Schefferville is either by daily flights to Sept-Îles and then to Québec City and Montréal or by weekly round-trip train service for passengers and freight to and from Sept-Îles. There is no road access to Schefferville either from Québec or Labrador population centers.

An alternative access route to Lac Otelnuk, particularly for mobilization of large amounts of equipment, is from the village of Caniapiscau, situated about 160 km southwest of the property, virtually the same distance from Schefferville. The village, where seasonal float-equipped air charter is available, is accessible by road from Southern Québec via Val d'Or, Matagami and Radisson. The cost of shipping equipment to the property via trucking to Caniapiscau and air to the Lac Otelnuk property would be less expensive than shipping by train to Schefferville and then by air to the property. This option would only be available after spring thaw.

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Figure 3.1 — Location of the Property

80° 70° 60°

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Legend: Figure 1. Labrador Trough ADRIANA RESOURCES INC. Prot' neml basmdary Lac Otelnuk Iron Property Railroad Quebec Canada

Property Location Map After Neal, HE 2000

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4.0 GEOLOGY, MINERAL RESOURCES AND MINING

Adriana is to undertake an exploration drilling program in mid summer of 2006. Once results of this program are available in the fall of 2007, an updated resource estimate will be prepared from a computer block model incorporating recent drilling results and previous drilling information. Following this, up-to-date resource estimate, preliminary mine design, conceptual mine planning and project financial analysis will be performed allowing completion of a 43-101 compliant Scoping Level Study.

Geological and previous drilling information is available in the report by WGM dated November 24, 2005.

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5.0 CONCENTRATOR

5.1 Metallurgy and Flowsheet Selection

5.1.1 Previous Testwork Summary

Metallurgical testwork on the Lac Otelnuk deposit was done during the 70s and early 80s. There was laboratory testing on Davis Tube and Jeffrey Low Intensity Magnetic Separator as well as one test on Jones High Intensity Magnetic Separator. In addition, a bulk sample of 21 ton was taken from the North Zone in 7 pits and sent to Lakefield Research now SGS Lakefield. Some laboratory testwork was again done by Lakefield Research and a German laboratory and finally a pilot plant testwork program was run for one week. Appendix A gives an overview of the results achieved with the samples studied at the time.

The main conclusion that came from these testwork programs is that the iron ore from Lac Otelnuk can be processed with a comminution circuit that also includes low intensity magnetic separation. Fine grinding at 80% finer than 38 microns is required to achieve a good concentrate of 68.5% Fe with silica content of approximately 4.5%. The weight recovery averaged around 35%, while the soluble Fe recovery varied from 75% to 80%.

5.1.2 Flowsheet Development

Based on the testwork performed to date, the knowledge acquired in the processing of magnetite rich ores in the Iron Range in Northern USA and new development in ore processing equipments, a preliminary flowsheet was developed for the present study. The flowsheet is presented in Figure 5.1 and further described in Section 5.2.3.

In consideration of power consumption for the grinding of the ore, the basic flowsheet was developed using High Pressure Grinding Rolls (HPGRs). This technology is now proven and gives operating availability as high as or higher than SAG mills. Moreover, from the pilot plant testing in 1981, indications are that the ore is hard and normally hard ores do not respond well to SAG milling. HPGRs require a larger number of equipment to prepare the feed (secondary crushers, conveyors, screens, bins, feeders), but they are lower capital cost equipment as compared to the large SAG mills anticipated. These two elements should compensate each other or even favour the HPGRs on capital cost.

The concentration plant will only make use of Low Intensity Magnetic Separators, screens and deslimer to reach an anticipated final concentrate of 68.5% Soluble Fe at 80% —270 Mesh.

The proposed flowsheet is preliminary and will require confirmation if the project moves into feasibility stage. Presently, it is anticipated that only the Magnetite rich horizon will be treated and that only Magnetite will be recovered. Experience to date in the Iron Range in Minnesota has proved to be unsuccessful at recovering the non-magnetic portion of the feed economically.

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5.2 Process Development and Plant Description

5.2.1 Design Ore Type

The ore that will feed the concentrator is a Cherty Magnetite with an average of 25% Mag Fe content according to drill core and bulk samples. Testwork to date has shown some variations of the Mag Fe content in the ore. The average value is taken for the purpose of concentrator design.

5.2.2 Design Criteria

Adriana has provided some basic process criteria and others have been assumed. These design criteria are summarized hereunder:

• The capacity of the plant for the base case will be of 10 million tonnes per year of concentrate; • The % Si02 in the concentrate will be 4.5% or less; The weight recovery as concentrate is 35% (approximated from testwork); The final concentrate grade is 68.5% Soluble Fe @ 98.7% recovery of Mag Fe (from pilot plant); The final grind size will be 80% -53 µm (270 Mesh); Primary grinding power requirement is 3.5 kWh/t (HPGRs — from manufacturer); Secondary grinding power requirement is 10.0 kWh/t of crude ore (ball mills — from testwork); The plant will operate 365 days a year with 90% equipment availability.

A mass balance summary for the concentrator is presented in Table 5.1 and a detailed mass balance is provided in Appendix B.

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Table 5.1 - Lac Otelnuk Concentrator Mass Balance Summary

Magnetic Mag Fe ITEM % Weight Iron Units % SG /° Fe Distribution

Feed 100.0 24.29 2429.1 100.0 3.54 Rougher Screen Oversize* 80.0 50.00 4000.0 164.7 4.36 Rougher Magnet Feed 180.0 35.72 6429.1 264.7 3.86

Rougher Magnet Feed 180.0 35.72 6429.1 264.7 3.86 Rougher Magnet Concentrate 121.0 52.95 6407.2 263.8 4.43 Rougher Magnet Tailings 59.0 0.37 21.9 0.9 3.06

Rougher Screen Feed 121.0 52.95 6407.2 263.8 4.43 Rougher Screen Undersize 41.0 58.71 2407.2 99.1 4.57 Rougher Screen Oversize 80.0 50.00 4000.0 164.7 4.36

Deslimer Feed 41.0 58.71 2407.2 99.1 4.57 Deslimer Overflow 2.0 1.21 2.4 0.1 3.06 Deslimer Underflow 39.0 61.66 2404.8 99.0 4.69

Finisher Magnet Feed 39.0 61.66 2404.8 99.0 4.69 Finisher Magnet Tailings 4.0 1.82 7.3 0.3 3.06 Finisher Magnet Concentrate 35.0 68.50 2397.5 98.7 4.95

Total Tailings 65.0 0.49 31.6 1.3 3.06

* Feed to Ball Mill

5.2.3 Flowsheet Description

The flowsheet presented in Figure 5.1 is described below.

a) Primary Crushing

The ore comes from the mine by trucks to the primary gyratory crusher. The crusher has two dump positions for the trucks which dump directly in the crusher feed pocket. The crushed ore falls in a crushed ore bin under the crusher and is fed by an apron feeder onto a belt conveyor which brings the ore to a 25,000 tonnes surge pile prior to the secondary crushing operation. The ore will be crushed to -200 mm (8") in the primary crusher.

Auxiliary equipment like a dust collector, an air make up unit, an overhead crane and monorails will support the operation and maintenance of the primary crusher and related equipment.

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b) Secondary Crushing and Ore Storage

From the surge pile after primary crushing, the ore will be reclaimed by two apron feeders and be transferred to the secondary crusher feed bins (500 tonnes capacity) by 1,830 mm width conveyors. The bottom of the crusher feed bins will have a heating system to prevent freezing of the material during winter. Three secondary crushers (MP 1000) in parallel will be fed by apron feeders from their respective bins. The discharge of each crusher will be transported to a dedicated screen (10' x 20') with deck openings of 63 mm. Oversize will be collected and recirculated to the feed bins while the undersize of the screens will be collected by a single conveyor and will feed the storage stockpile with 175,000 tonnes capacity (2 days of feed).

Auxiliary equipment like a dust collector, air make up units, overhead cranes and monorails will support the operation and maintenance of the secondary crushers and related equipment.

c) Primary Grinding (HPGRs)

The ore will be withdrawn from the stockpile by belt feeders onto a conveyor that will take it to the HPGRs feed bins. The bottom of the HPGRs feed bins will have a heating system to prevent freezing of the material during winter. Each HPGR (3 parallel lines) has a belt feeder that controls the level of a feed chute to keep the operation at optimum conditions. The HPGR discharge will be collected on a Flexowell® conveyor that will transfer the pressed material to two dedicated screens with 6.35 mm openings. The screening will be wet and the oversize will be collected by a conveyor and recycled to the HPGR feed bins. The undersize will be collected in a joint pump box also collecting the ball mill discharge. The three RP- 20 HPGRs will each be driven by two 2,250 kW (3,000 hp) motors.

Dust collectors, air make up units, overhead cranes and monorails will be provided — to support operation and to facilitate maintenance of the equipment.

d) Rougher Circuit with Ball Mills

Three lines are required to produce 10 million tonnes of concentrate per year. Each HPGR screen undersize and its corresponding ball mill discharge will be collected in a joint pump box and fed to fourteen rougher magnetic separators (4' x 10') through a slurry distributor. The separators non magnetic tails will be collected in a launder that will transfer them to the tailings thickener. The magnetic concentrate of each separator will be screened with a Derrick Stacksizer® screen with 200 Mesh screen opening cloths. The oversize of all screens will be collected in a pump box and pumped to dewatering cyclones to remove excess water and then ground in the ball mill before being returned to the rougher magnetic separators. The screen undersize will be directed to the finisher circuit. The ball mills will be driven by two 6 MW (8,000 hp) motors at fixed speed.

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Three overhead cranes will be provided for the ball mills, the cyclones and the rougher magnetic separators for maintenance. Where access is not possible with the overhead cranes, monorails will be installed.

e) Finisher Circuit

The Stacksizer® screen undersize is collected in a deslimer in which water is added to remove non magnetic slimes prior to finisher concentration. The magnetic material interface is monitored to prevent magnetic iron losses. The deslimer overflow is transferred to the tailings launder via a pump and the underflow feeds the finisher magnetic separators (six triple drum 4' x 10' Stephenson type design magnetic separators per line). Tails of the finisher separators are collected in the tailings launder and transferred to the tailings thickener while the concentrate of each separator goes to the concentrate thickener.

An overhead crane will be provided for the finisher magnetic separators maintenance. Where access is not possible with the overhead cranes, monorails will be installed.

f) Concentrate Dewatering

The final concentrate will be thickened in a 140' diameter thickener to raise the percent solids to 65-70% prior to its storage in slurry tanks. The overflow will be directed by gravity to the process water tank.

A concentrate filtering system and load out will be required at the mine site if the concentrate is to be transported by rail to the Sept-Îles pellet plant. If the pipeline option is selected, the concentrate slurry will be taken directly from the storage tanks, pumped through a slurry pipeline and filtered at the pellet plant.

g) Tailings Dewatering and Disposal

The combined tailings streams of the three tailings launders will be directed to a 140' diameter thickener in which flocculent will be added. The thickener overflow will flow into the process water tank. The underflow of the thickener will be pumped to the tailings pump box and be pumped to the tailings disposal area.

Tailings material will settle in the tailings pond and the clean water will be collected and recycled to the concentrator as process water make up.

h) Plant Services

The plant will need air compressors to provide compressed air for services and equipments (mill clutch). Part of the compressed air will be dried to supply instrumentation requirements.

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The process water will be supplied from a reservoir by horizontal centrifugal pumps. The water will be recycled from the thickener overflows and the balance will come from the tailings reclaim water pumps and the fresh water make up from Lac Bricot. Fresh water requirements will be kept to a minimum to minimize impact of the operation.

A diesel generator will be on stand-by to provide emergency power to operate critical equipment in case of power outage.

Mobile plant equipments will be provided (bobcats, lifts and front-end loader) to clean-up the diverse areas of the concentrator and to handle material as required by the operation.

5.2.4 Instrumentation and Control

The concentrator will be fully automated with operation controlled from control rooms in the various areas of operation (primary crushing, secondary crushing, grinding and concentration). Operator manipulation will be kept to a minimum to limit manpower requirements.

Automatic samplers will be installed on the main slurry streams for process control and daily metallurgical accounting.

Conveyors will be equipped with weigh scales at the primary crusher, secondary crushers and HPGR feed to totalize material tonnages into the mill. The concentrate tonnage will be monitored with density and flow meters to totalize the concentrator output.

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6.0 TAILINGS MANAGEMENT

6.1 Design Criteria and Assumptions

A preliminary assessment of tailings disposal requirements to contain and manage the tailings and process water for 20 years of exploitation of the Lac Otelnuk Iron project and its related investment costs was performed by JBA, experts in tailings management retained by Met-Chem.

The tailings storage requirements were based on the production of 560 M tonnes of inert mill tailings over 20 years based on a production rate of 15 M tonnes of concentrate per year. Design criteria were based on a 60% solid by weight tailings slurry with a specific gravity of the solids estimated at 3.06. It was assumed that the total amount of water pumped to the tailings pond was to be recycled back from the tailings impoundment to the concentrator. Fill plans were developed for 400 Mm3 of tailings to accommodate a 20-years production at 15 M tonnes of concentrate per year and a straight line average deposition slope of 0% for the tailings was used.

The tailings impoundment design considers the design flood specified by provincial regulations (Directive 019) to hold a 100 year 24-hour rainstorm plus the 100-year snow pack melt. Water dams are designed based on an initial waste rock and membrane water dam. All dams are then raised with rock fill lifts.

6.2 Tailings Storage Option

Two (2) tailings storage options, Concession and Adanys, were considered in this preliminary evaluation (See Figure 7.1) to fulfill the requirements of a 15 M tonnes of concentrate per year. Construction costs for both options were however established for both production rates: 15 M tonnes and 10 M tonnes of concentrate per year. The preliminary assessment of site selection indicates that considering the local topography, the presence of numerous lakes and river, the relatively large volume of tailings to store and construction costs it will be difficult not to select a disposal site located in the area of existing water bodies. The final site selection will need to include environmental considerations and potential impacts of proposed sites.

6.2.1 Concession Option

This option is located on the west side of future mining operations at the bottom of a large valley where Concession Lake is located. Only one dyke is required for the tailings impoundment, but the total height of the dyke reaches 56.5 m. Since the tailings impoundment is in a deep valley, the tailings can be deposited from the same ramp for long periods of time and just some work are needed to extend the ramp when it is full. This option corresponds to the smallest footprint. However, a significant amount of watershed area can not be diverted outside the impoundment thus increasing water treatment volumes.

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Based on the design criteria and a preliminary analysis of the water balance a 41.5 m high, 2.2 km long water tight dam will be required to hold the 100 year design flood in the final year of operation. For a normal year, preliminary analysis of the water balance indicates that a surplus volume of 54.7 Mm3 of water to be evacuated to the environment between May and November.

6.2.2 Adanys Option

This site is located on the east side of future mining operations and north of the proposed concentrator location in an area scattered with small ponds and Adanys Lake. In this option, the area of the tailings impoundment is larger because there is less available free height. More dykes are needed, but with a lower height with a maximum of 25 m. The operation is expected to require several deposition points and beaches are needed to protect the side dykes. The better part of the watershed area can be diverted around the tailings impoundment, leaving only the surface area of the impoundment to precipitation.

Based on the design criteria and a preliminary analysis of the water balance a 9.5 m high, 3.3 km long water tight dam will be required to hold the 100 year design flood in the final year of operation. For a normal year, preliminary analysis of the water balance indicates that a surplus volume of 29.9 Mm3 of water to be evacuated to the environment between May and November in compliance with Directive 019.

6.3 Spillways

In both options, an operational/emergency spillway is required at the sedimentation dam to allow decanted water to flow into the recycle basin. The recycle dam requires only an emergency spillway.

6.4 Recommendations

An estimate of the investment costs for both the Concession Option and the Adanys Option, for both 10 Mtpy and 15 Mtpy of concentrate was evaluated. The Adanys option provided the lowest initial capital cost. However, after consultation with Adriana who indicated that this area might not be acceptable to First Nations, it was agreed to consider the Concession option for the capital cost estimate.

All calculations were based on 5 m intervals contour. A detailed survey is required to improve the level of confidence in the costs.

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7.0 PROJECT SITE INFRASTRUCTURE

The general site layout of the Lac Otelnuk project showing future pit location, concentrator, tailings disposal and other infrastructure is shown in Figure 7.1.

7.1 Design Criteria

The infrastructure for the Otelnuk mine site is based on a base case scenario of 10 Mtpy of concentrate per year produced at the Otelnuk mine site and an alternate scenario of 15 Mtpy of concentrate, the transportation of the concentrate using either a pipeline or railway option to a pellet plant located in Sept-Îles having an annual production capacity of either 10 Mtpy or 15 Mtpy of acid pellets annually and all related facilities, stockyard and reclaim system and a deep water port and shiploading system.

The present study is based on a 20-year production schedule. Infrastructure for the project includes: access road, campsite, site roads, airstrip, potable water, sewage water treatment, mine site camp including catering services and other infrastructure required in a remote location such as Lac Otelnuk.

7.2 Offsite Access and Transport Infrastructure

7.2.1 Access Road

A 175 km all weather gravel road will be constructed to connect Schefferville to the Otelnuk mining camp site. The road will follow the north westward general topography following the base of the ridge located to the west of the valley, no major bridge construction are foreseen while numerous culverts will be required to allow for natural drainage and spring thaw. The access road runs to the West of the railway at a distance that never exceeds 12 km.

All supplies for the project will be delivered to Sept-Îles using trans-modal container for fast trans-boarding on rail cars destined for Schefferville. The road will be used to truck supplies from the Schefferville train station to the mining site during construction.

7.2.2 Railway Train Station and Freight Yard

In the event that the railway option is retained for the transport of concentrate from the Otelnuk concentrator to Sept-Îles in lieu of the pipeline option, all supplies will arrive by rail from Sept-Îles requiring a rail yard with a fuel unloading station, a pipeline to the tank farm and a rail siding to allow for the unloading of merchandise without interfering with the concentrate loading operation.

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7.2.3 Airstrip and Facilities

A 2,350 m long gravel landing strip capable of accommodating fully loaded Boeing 737- 200 Combie (76 passengers or cargo) and helicopter will be built at the Otelnuk mine site. It will serve for the transportation of personnel and the transit of material.

It is assumed that waste material from the mine pre-production, crushed rock and sandy sill will be available as fill material.

A small building with all facilities will be erected for incoming and departing personnel. The building will also house a communication office with weather station, communication tower and airstrip lighting.

A jet engine and helicopter fuel truck will refuel airplane and helicopter from a reservoir located at the fuel farm.

7.3 Mine Infrastructure and Equipment

For the purpose of the present study, it has been assumed that mining will take place in the South Zone of the Lac Otelnuk Iron mineralized zone.

However, due to the non availability of NI 43-101 compliant mineral resources at this time, the mining operation is not developed in the study. Consequently, with the exception of fuel tank farm, maintenance garage and warehouse facilities covered in the next section, no mining related infrastructure and equipment are included in this study.

7.4 Site Infrastructure and Equipment

7.4.1 Otelnuk Site Preparation

The Otelnuk site preparation includes clearing, grubbing, overburden removal, rock drilling, blasting and removal, excavation, levelling, general fill or mine waste fill.

7.4.2 Otelnuk Camp Site

The Otelnuk camp site will be erected upwind from the concentrator and train loading station. It will be built to accommodate 1,320 construction workers, including catering.

During the phasing out of the construction, the camp will be modified to accommodate 669 persons including 15 guests, 35 catering personnel and 16 contractors. It will include a cafeteria, training center, cinema, play room and reading room. The camp will be provided with electrical heating.

7.4.3 Otelnuk Site Roads

All site roads will be built to the same standard used for the access road. Site roads are required for communication to and from the gatehouse to the camp, the airport, the water

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pumping station, the steam plant, the concrete batch plant, the rail yard, the rail car loading station, the incinerator and the water sewage treatment stations.

7.4.4 Tank Farm

A tank farm holding sufficient supply of No. 2 diesel fuel, No. 6 Bunker C fuel oil and gasoline will be erected south of the mill complex.

7.4.5 Mine Garage

The mine garage offices and change house will be located adjacent to the mill.

7.4.6 Warehouse

Two adjacent warehouse, one cold and one heated will be built along side the concentrator as part of what will be the mill complex (concentrator, Otelnuk administration, mine offices, change house, mine dispatch, mine garage and general maintenance).

7.4.7 Otelnuk Administration Offices

The Otelnuk administration offices will be located at the mill complex above the warehouse. It will house the general manager, personnel management, local accounting, security, safety & environment, and infirmary and offices for visitors.

7.4.8 Gatehouse

The gatehouse, a building of 8 m x 4 m located along the access road and to the south end of the property will host the security guard in function and receive all remote cameras, security, fire and safety systems information and data. It will also direct incoming traffic.

7.4.9 Incinerator Plant

The incinerator plant requires a climate controlled enclosure of 4 m by 7 m. It is capable of handling daily waste and sewage sludge. The system operates in a batch style, one batch per day of solid up to 2,400 kg, top loaded. The system is automated, rated for No. 2 oil and does not require operator input during operation.

7.4.10 Fresh Water Supply

Fresh water will be sourced from Lac Bricot about 3.5 km northeast of the concentrator. Two pipelines originating from a pumphouse on the lake shore will feed the make up water tank at the concentrator.

The make up water tank will be used to feed the potable water treatment plant (membrane filtration type).

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The upper part of the tanks will be used for concentrator make up water, the middle part of the tank will be used to feed the potable water treatment plant and the lower part of the tank will provide a constant volume of water available for fire water.

A 10 m by 15 m ventilated and heated building is required for pumps and controls for the supply of 300 cubic meters per day of drinking water. The building first installed at Lac Bricot during construction will be moved to the mill when the mill make up water pumps are installed.

7.4.11 Water Sewage Treatment Plant

The plant will be built east of the concentrator and will have sufficient capacity to treat 300 cubic meters per day of sewage water. The plant will require a heated and ventilated building 4 m x 7 m for pumps and controls.

7.4.12 Used Oil Treatment

The used oil treatment tank will be located near the garage and treated oil recuperated will be delivered to the boilers day tank.

7.4.13 Steam Plant

The steam plant includes three boilers and 4.5 kilometres of piping for the concentrator, garage, offices, maintenance complex, the concrete cement plant and for the Bunker C No. 6 rail unloading station, pipeline to the tank farm and the tank unloading and pipe line to the steam plant.

7.4.14 Concrete Cement Plant

It is proposed to use a semi portable Concrete mix plant having a capacity of 91.7 cubic meters per hour. Discharging into buckets, pumps or open top hauling vehicles.

Cold weather operation will require that aggregate and sand stockpiles be laid over steam heated cement slabs covered with a tarp building. Provisions are made for two steam heated slabs each one having a capacity of 25,000 tonnes be constructed, using the Bunker C oil steam heater.

7.4.15 Aggregate Plant

It is proposed that the aggregate plant be supplied by others for roads construction and civil work and that sufficient stockpile be built at critical locations for road maintenance and construction work.

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7.5 Electrical Power Supply

7.5.1 Design Basis

a) Mine Site

The total estimated electrical power required at the mine site for the mine, crusher, concentrator, main slurry pumping station and all associated infrastructure is estimated to some 105 MW when 10 million tonnes of concentrate are being produced per year and 160 MW when 15 million tonnes of concentrate are being produced. It is proposed to distribute electric power at the mine site at 34.5 kV. This is an industry standard voltage for projects using comparable power levels. Met- Chem is aware that equipment and devices are readily available at competitive prices for this voltage.

To transmit 105 to 160 MW over such a so long distance, a 315 kV AC transmission line will be required.

b) Pipeline Water Pumping Stations

Power at pumping stations along the concentrate pipeline to Sept-Îles will be supplied by diesel generator stations installed at each location.

c) Pellet Plant, Port and Shiploading

Power demand is estimated to be 60 MW at the Sept-Îles port facilities including the pellet plant and the shipping area. These installations will be supplied with electricity from Hydro-Québec established grid.

7.5.2 Transmission Lines

Met-Chem met with Hydro-Québec in March 2006 to discuss the electrical requirements of the Lac Otelnuk and Sept-Îles installations and address the power supply issue to these locations. Subsequent communications led to the issuance of letter by Hydro-Québec Distribution dated May 17, 2006.

Hydro-Québec provided information as to the power sources to be considered for Lac Otelnuk and Sept-Îles and those are discussed in subsequent paragraphs. Unit consumption costs to be used in the project study were also recommended as follows by Hydro-Québec:

• For the first 50 MW of demand: use $0.0438/kWh; • For the demand exceeding 50 MW: use $0.0830/kWh.

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However, tarification above 50 MW could subsequently be negotiated depending on economic attractiveness of the project for the Québec Government (i.e. number of jobs created, duration of project and other considerations).

a) Otelnuk Power Supply

Hydro-Québec recommends a 315 kV power line in consideration to the distance and the demand load of the mine site.

Figure 7.2 supplied by Hydro-Québec shows relative distances to existing power station that could be considered to supply power to Lac Otelnuk.

According to Hydro-Québec, the power station of Brisay located at 240 km can supply the mine site and is the best alternative at a cost of $300 million.

b) Port Facilities at Sept-Îles

Hydro-Québec has confirmed in their letter than the main power substation Arnaud can feed the port facilities including the pellet plant, stockyard, berth and others facilities.

The distance between the substation Arnaud and the port facilities are estimated at five (5) kilometres.

A discussion held with Hydro-Québec on May 30, 2006 allowed Met-Chem to evaluate the cost for the construction of a 161 kV line at $8.25 million.

7.5.3 Transmission/Distribution to Concentrate Pipeline Pumping Stations

The power required for the first pumping station at the concentrator will be supplied by the site power distribution grid to be established for the main concentrator and other infrastructure.

Power for the other booster stations along the pipeline will be supplied from diesel generator stations installed at each location. Another alternative would be to establish a dedicated line along the pipeline route connected to the Hydro-Québec grid at Fermont/Mount Wright.

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Schefferville

•Churchill

TransÉnergie Qt. d'HyUdZ-t:iTC) PROGRAMME D'ÉQUIPEMENT Poste DES RÉSEAUX RÉGIONAUX Site minier Projeté par: Dominique Théberge, ing. 2006-03-22

Baie-Trinité.vsd Figure 7.2 Adriana Resources Inc. Section 7 Lac Otelnuk Iron Property Preliminary Capital and Operating Costs Estimate Page 26

7.5.4 Distribution at Otelnuk Site

a) Main Electrical Room

The main electrical room will be located near main loads with the following equipment:

Switchgear 34.5 kV; Switchgear 13.8 kV; Switchgear 4.16 kV; Switchgear 600 volts.

b) Overhead

34.5 kV lines will be installed between the main substation and the following locations:

• Reclaim water pumphouse at tailings pond; • Fresh water pumphouse at Lac Bricot; • Open pit; • Camp site area.

c) Emergency

Emergency diesel generators will be located near the main electrical room and will feed the main busbar at 4,160 volts to give the emergency power as much to the critical loads in the concentrator as the critical loads on the site.

Emergency diesel generator will be located near the electrical room located near the pipeline pumphouse and will feed the main busbar at 4,160 volts to give the emergency power of pipeline pumphouse.

d) Water System

A tap will be fixed on an overhead line to feed the collecting pond area.

e) Communication System

The plant will be connected to the public utility service by satellite which will allow communication lines for the plant and the camp site. The main entrance will be located in the administration building of the concentrator and other one in the camp site.

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7.5.5 Distribution to Sept-Îles Facilities

A 161 - 34.5 kV main sub-station with a capacity evaluated at 60 MW will be built near the pellet plant.

a) 34.5 kV Distribution

From the pellet plant substation, power will be distributed at 34.5 kV to the following areas:

• Stackers, reclaimer and conveyors in the product storage yard, to the conveyor from the storage yard to the jetty, and to the conveyors and shiploader on the jetty and wharf; • Pellet plant (2 lines); • Berth to feed the shiploaders; • Administration building. b) Remote Plant Gate

A 4,160 volts line will be installed between the main substation and the remote gate.

c) Fire Alarm System

The fire alarm system includes a main protection panel located in the office building and auxiliary panels in all buildings.

d) Communication System

The Port will be connected to the public utility service available on the area. The main entrance will be located in the administration building of the Port.

7.6 Administration

7.6.1 Otelnuk Administration

The Otelnuk administration offices will be located in the mill complex which will be attached to the concentrator and will include the concentrator offices, the mine offices, the mine garage offices, the maintenance complex offices and a change house for all employees working at Otelnuk.

7.6.2 Sept-Îles Administration

The Company's administration offices will be located in Sept-Îles in a dedicated building near the pellet plant.

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7.6.3 Sept-Îles

No camps are required during the construction and all personnel will live in Sept-Îles.

Operating personnel will be working at three different locations: the port and pellet plant, the Sept-Îles shipyard for material going to Schefferville and the pipeline personnel station in Sept-Îles.

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8.0 CONCENTRATE TRANSPORTATION

Two options were considered to transport the iron ore concentrate from the Lac Otelnuk concentrator to the pellet plant in Sept-Îles. One is a slurry pipeline and the second one is transportation of dewatered concentrate by train.

8.1 Pipeline

8.1.1 Route Selection

The concentrate transportation option by pipeline is based on the construction of a 695 km pipeline between the concentrator at Lac Otelnuk and the pellet plant located in Sept-Îles.

The proposed route shown on Figure 8.1 was selected using Québec topographic map at a scale of 1:250000. This route was based on minimization of distance, climbs and the number of water crossings. The route was also required to stay clear of several protected areas identified in the region.

Starting from the concentrator and for a 50 km distance the pipeline will follow the right of way of the proposed mine access road. The pipeline then branches out in a general South direction passing West of Lac Opiscoteo and between two (2) protected areas identified as TI-D32 and Lac Gensart. Past this area, the pipeline follows a general Southeast passing East of Petit Lac Manicouagan and Uapishka and continuing towards Sept-Îles West of Sainte-Marguerite River and East of Lac Pasteur protected area. The total length of the pipeline is 695 km and the maximum elevation is 750 m.

8.1.2 Hydraulic Design

The design basis parameters include the following:

Two (2) pipeline throughputs are being evaluated 10 Mtpy of concentrate (90% availability) for a slurry flow of 4,133 USGPM and 15 Mtpy of concentrate for a slurry flow of 6,198 USGPM; Slurry concentration is 65% solids by weight; Solids specific gravity: 4.99; Slurry specific gravity: 2.08; Design code based on ASME B 31.11.

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The pipeline ground profile and the estimated hydraulic gradient were based on elevation points recorded every 5 km interval. A minimum 30 m clearance is provided between the hydraulic gradient and the ground profile. A safety factor of 10% was applied to the design flow for friction loss estimation, pumps and motor sizing. The pipe wall thickness for consecutive sections has been selected to match the expected operating or hydrostatic pressure. A corrosive allowance of 6 mm was provided for the first 10 km of the pipeline and 3 mm for the rest of the length.

For the option at 10 Mtpy of concentrate, it is estimated that four (4) pump stations will be required. Their proposed locations are at the concentrator, at km post 210, at km post 350 and at km post 495. Four (4) positive displacement pumps operating in parallel plus one stand-by will be required for each pump station. Each pump shall have variable speed drive c/w electric 1,200 kW motor. Each pump station will require an insulated building with a 15 tonne overhead crane. A steel pipeline diameter of 20" OD (Code API 5L Grade X65) with variable wall thickness has been selected to maintain an operating velocity at about 1.6 m/sec.

For the option at 15 Mtpy of concentrate, it is estimated that three (3) pump stations will be required. Their proposed locations are at the concentrator, at km post 270 and at km post 465. Six (6) positive displacement pumps operating in parallel plus one stand-by will be required for each pump station. Each pump shall have variable speed drive c/w electric 1,200 kW motor. Each pump station will require an insulated building with a 15 tonne overhead crane. A steel pipeline diameter of 22" OD (Code API 5L Grade X65) with variable wall thickness has been selected to maintain an operating velocity at about 1.8 m/sec.

Laboratory tests will be required at the later design stages to verify the optimal slurry velocity and friction losses.

8.1.3 Agitated Storage Tanks

Four (4) storage insulated steel tanks are provided at the concentrator pump station. Each tank has to be equipped with agitator to keep slurry in suspension. Two (2) tanks will be required at the terminal in Sept-Îles and two (2) centrifugal slurry charge pumps will be required at the feed to the pipeline.

8.1.4 Protection

Provisions have been made for the insulation of the pipeline and a burial depth of 2 m has been considered. Additional measures such as steam injection, glycol addition could be considered in subsequent studies. Field survey of soil temperatures along the proposed pipeline route will also be required to collect data regarding heat balance calculations and to better define the freezing protection requirements.

The addition of oxygen absorbing chemicals to the slurry will be required to combat internal pipe corrosion.

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Provisions have been made to address requirements for flushing pumps and pipes if the pipeline and pump stations are shut down with slurry in the piping system. Assumptions have been made that water required for flushing will be provided from nearby lakes and rivers for the pump stations while flushing water will be available from the concentrator at the mine site.

8.1.5 Power Supply

Two options were considered to bring power supply to the pump stations along the pipeline: overhead power lines and diesel powered generators. Since the investment cost was considerably less with diesel powered generators, this option was considered in the overall capital cost estimate of the present study. However, operating power costs will be higher and trade off cost comparisons should be carried out in subsequent studies.

8.1.6 Instrumentation and Controls

Flow, pressure, slurry concentration and temperature and power monitoring instrumentation will need to be provided at several points along the pipeline. The level of controls required for the pipeline should include supervisory control and data acquisition system, communication system via fiber optic cable and operating software.

8.2 Railway Transport

8.2.1 Route Selection

The concentrate transportation option by railway is based on the construction of a 187 km railway line to connect the mine site in Lac Otelnuk to the existing railway in Schefferville and an additional 9 km of railway tracks and concentrate unloading installations at the pellet plant in Sept-Îles. The concentrate transportation between Schefferville and Sept-Îles would be provided by the existing Schefferville/Sept-Îles railway system. However, it is known that the Schefferville/Ross Bay Junction railway infrastructure adequate for passenger service is expected to require upgrade for bulk transportation. It is assumed that the required upgrade of the Schefferville/Ross Bay Junction portion of the railway will be provided by others. An agreement with Tshiuetin Railway will be required for the transportation of concentrate over the Schefferville/Ross Bay Junction segment. An agreement will also be needed between Adriana, Québec North Shore and Labrador Railway (QNS&L), operator of the Ross Bay Junction/Sept- Îles portion of the railway, and IOC for its use.

The proposed route shown on Figure 8.2 was selected using Québec topographic map at a scale of 1:250000. This route was based on minimization of distance, climbs and the number of water crossings. The route was also required to stay clear of several protected areas identified in the region.

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Starting from the concentrator the railway line follows a general Southeast direction more or less parallel to the proposed mine access road. It passes between the Canyon-Eaton and the Collines Ondulées protected areas and West of Lac Wakuach, Lac Le Fer, Lac Gillet and connects to the existing railway North of Schefferville.

8.2.2 Railroad Requirement

Requirements for concentrate throughputs of 10 Mtpy and 15 Mtpy have been evaluated. The railroad design is based on industry standards and specifications for this type of rail operation: heavy axle loaded railcars carrying 32.6 tonne axle loads and a gross weight on rail of 129,725 kg. The net capacity of train cars being 90 tonnes. The railroad capital costs have been estimated based on construction requirements such as standard grade continuous welded rail, ties, ballast, sub-ballast and all new material.

It is estimated that one (1) ore car round trip between Mile 8 near Sept-Îles and Lac Otelnuk mine site will take 51 hours. This will allow for meets, change crew and inspections along the line. Provisions for 2,015 m long sidings and 670 m long back tracks for each siding have been made. The number of sidings varies for each option.

At 10 Mtpy, it is estimated that a total car fleet of 710 cars will be required including an additional 10% allowance to cover maintenance. Assuming that IOC will handle trains between Ross Bay and Sept-Îles, they will require 10 locomotives, 4,000 hp series, including 2 spares for service and maintenance. Adriana will require five (5) locomotives at the mine to haul the trains for the return trip between Ross Bay and the mine (21.5 hours per trip). These five (5) locomotives will cover two (2) sets of two (2) locomotives and one (1) spare for repair and maintenance. It is assumed that another three (3) locomotives will be required to take the train from Mile 8 to the dumper station and return the train to Mile 8. A total number of locomotives of 18 is therefore required to cover the transportation of 10 Mtpy of concentrate. At 10 Mtpy, a total of four (4) sidings will be required at Mile 16, Mile 48, Mile 80 and Mile 112 starting from the mine site.

At 15 Mtpy, it is estimated that the daily production will require a total car fleet of 1,067 cars would be required including an additional 10% allowance to cover maintenance. Assuming that IOC will handle trains between Ross Bay and Sept-Îles, they will require 14 locomotives, 4,000 hp series, including 2 spare. Adriana will require seven (7) locomotives at the mine to haul the trains for the return trip between Ross Bay and the mine (21.5 hours per trip). These seven (7) locomotives will cover three (3) sets of two (2) locomotives and one (1) spare for repair and maintenance. It is assumed that another three (3) locomotives will be required to take the train from Mile 8 to the dumper station and return the train to Mile 8. A total number of locomotives of 24 is therefore required to cover the transportation of 15 Mtpy of concentrate. At 15 Mtpy, a total of seven (7) sidings will be required at Mile 16, Mile 32, Mile 48, Mile 64, Mile 80, Mile 96 and Mile 112 starting from the mine site.

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9.0 PELLET PLANT

9.1 Design Criteria

The 10 millions tonnes per year pellet plant will be located at the bottom of the Bay of Sept-Îles in an area with adequate space to accommodate: slurry reception from the pipeline, pellet plant and related facilities, stockyard and reclaim system and a deep water port and shiploading system. The pellet plant will be composed of 2 identical lines and will include: thickeners, slurry tanks, filtering equipment, cake storage bin, mixers, balling drums with roller screen, indurating machines and a common pellet screening, hearth layer and conveyor system. Each line will have a capacity of 5 million tonnes per year of acid pellets. A typical plant layout is shown in Figure 9.1.

This scoping study considers a straight grate induration line but a grate kiln could also be used to produce equally high quality pellet. A conservative 90% utilization factor (328.5 day or 7,884 operating hours per year) with a grate factor of 28 tonnes per square meter per day is used. This is achieved and surpassed by most existing Québec North Shore plants. Each induration machine would have an effective grate area of about 544 m2 and a net production rate of 634 tonnes per hour.

The expected pellet characteristics should be:

• Sizing 92% (min.) +9.5 mm -16 mm; • Tumble +6.3 mm 95% min; • Abrasion 4.5% (max); • Compression strength 250 kg (min.) average.

9.2 Plant Mass Balance

Based on previous studies, the mass balance shown in Figure 9.2 is expected while producing acid pellet. For this scoping study, one tonne of feed equals one tonne of pellet and the gain and loss on ignition were adjusted to suit. At the feasibility level, pot grate test will permit evaluation of the production rate, product quality and gain/loss on ignition.

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Figure 9.2 — Pellet Plant Mass Balance (Acid pellet at 5.0 Mt/year/line) All units are in dry tonnes per hour

CONCENTRATE 634 ~ 21

CYCLONE OVERFLOW

THICKENER

SLURRY TANKS

655 FILTERING

655 BENTONITE 3 MIXING

658

BALLING

658 1 PROCESS LOSS

657 816 Loss CO2 13 DUST 5 INDURATION 159 REGRIND 809 Gain 10

CHIPS 16 SCREENING

PELLET 634

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9.3 Slurry Reception

The slurry will be received from the pipeline at 65% solids in a transfer tower and will generally go to either one of 2 thickeners along with reground pellet chips. The thickeners underflow will be pumped at 72% solids to two agitated and heated slurry tanks having a capacity of 8 hours of production for each line. These tanks serve as a surge capacity between the concentrator/slurry pipeline and the pellet plant and also receive the limestome additive. Each of the 2 agitated slurry tanks per line will be 16 meter in diameter and 17 meter high. Steam will be sparged directly into each tank to heat the slurry to about 40°C to help filtration.

9.4 Filtering

From the two tanks the slurry will be pumped to a pressure distributor with overpressure return line to the slurry tanks. A level controller maintains a constant slurry level in the filter booth through a pinch valve on the feed line from the pressure distributor. The filters overflow and filter booth drains are also returned to the slurry tanks. This scoping study considers using about five disc filters per line. Each filter is 9' in diameter and has area of 120 m2. It is likely that due to the fineness of the concentrate received (> 90% - 325 Mesh) from the concentrator, disc filters will give a higher moisture than generally preferred and pressure filters may be required to yield a more acceptable moisture level. This will have to be investigated during the pilot plant test work. The filter cake from each line will be conveyed to a common cake bin of about 1,800 tonnes of storage capacity or 1.4 hours of operation. This provides a surge capacity between filtering and balling.

9.5 Cake Mixing

The filter cake will be extracted from the cake bin by 2 parallel belt feeders each with variable speed and a scale to control the feed rate to the mixers. Each line will have one high intensity mixer (Litlleford/Lodige type) of 15,000 litres volume. A spare third mixer, located between the two primary mixers, will be fed by a short shuttle conveyor. It will mix cake for either pelletizing line. Bentonite from a day bin besides the filter cake bin, will be added in proportion to the cake feed rate for each line. If required, water can also be added to each mixer. The mixers are used to mix intimately the Bentonite used as binder for balling with the filter cake and to fluff the material to make it a better feed for the balling drums.

9.6 Balling

The mixed material will be conveyed by a series of conveyors to a flat conveyor running above the feed bins for each balling drum. A plough at each bin will divert the mixed feed to the bin. Each line will have four (4) 5 m diameter balling drums. Each drum will have a variable speed feeder. The drum discharge will be screened on a roller screen conveyor to remove the undersized green balls which will be cycled to the drum to grow in 2 or 3 passes to the required size. The on size green balls from all the drums in one line

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are collected on a conveyor and transferred to a reciprocating conveyor at the induration machine. The oversized balls discharged from each roller screen will be disintegrated by a rotating cylinder and returned to the balling drum along with the undersize pellet seeds. Balling drums are selected over balling discs because they produce a tighter product specification and have higher production rate.

9.7 Indurating

The reciprocating conveyor is perpendicular to the wide belt feeding the machine roller screen. As it moves across the wide belt, it lays parallel rows of green balls on the wide belt that feeds the roller screen. The roller screen removes the green balls which may have been damaged in transit. About 10% of the feed is returned to the balling feed bins in this last cleaning step. The sized product from the roller screen is eased as a 400 mm layer on top of 100 mm thick bed of hearth layer to a total thickness of about 500 mm. A chute on each side lays a layer of fired pellets between the pallet sidewalls and the green balls. These previously fired pellets were returned from the screening house and are used to protect the grate and the pallet sidewall from extreme temperature in the firing and after firing zone and to help hot gas distribution. The following description of the process, gas and pellet flow is adapted from an induration equipment supplier's description. The straight grate machine is composed of: updraft drying; downdraft drying; preheat; firing; after firing; first cooling; second cooling sections.

Sensors on the bridge at the entrance of the machine modulate the machine speed to maintain a constant bed depth. The hearth layer depth is adjusted by a gate from 75 mm to 500 mm. should a significant change to the green pellet feed rate occurs, the hearth layer depth can be reset to maintain the bed depth for the desired operating grate speed. The hearth layer performs three functions during normal operation. First, it creates a temperature gradient between the bottom of the green pellet layer and the metal grate components. This permits the bottom green pellets to be fully fired in the firing zone and still protect the grate from higher temperature. Second, it permits gases passing up through the openings in the grate to be diffused into a uniformly distributed flow before encountering the green pellet layer. Third, it will act as a heat storage mass, collecting heat in the hotter zones for recovery in the two cooling zones.

The freshly charged material (green pellets on hearth layer) first travel through the Updraft Drying Zone. In this zone, free moisture will be removed from the lower half of the green pellet bed. The drying strengthens the lower green pellets and helps to prevent deformation of the green balls during subsequent downdraft processing. Additionally, the lower green pellets in the bed will, in the Updraft Drying Zone, be raised to a temperature sufficient to prevent condensation from occurring when gas flow reversal takes place as the material moves into the Downdraft Drying Zone. In the downdraft Drying zone the removal of free moisture will essentially be completed. The material will then move into the Preheat Zone. In the first portion of the Preheat Zone the downward blast of gas moderated to approximately 620°C will effectively eliminate chemically bound water. The second portion of the Preheat Zone will consist of two (2) sub-zones of combustion

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temperature control in which burners will be used to provide intermediate heating before the Firing Zone. This stepping up of temperature will prevent thermal shock effects in the Firing Zone. The Firing Zone will consist of several zones of combustion temperature control in which burners will be used to maintain hood temperatures up to 1,360°C, although significantly lower operating temperatures will be used. By the end of this zone, the upper layers (more than half the bed depth) of the green pellets will have reached the desired indurating temperature to produce good pellets. The pellets will then enter the After Firing Zone providing temperature control which gives a step down in temperature. The cooler gases in the After Firing Zone will transfer heat from the already fired upper layers to the lowest layers of the green pellet bed. The pellet bed will then pass through the First and Second Cooling Zones. The updraft cooling air will quickly cool the grate components as well as the pellet bed. From there, the pellets will be transported to the end of the grate where the tipping wheel will move the casting to the return strand and dump the pellets into the Discharge Hopper.

9.7.1 Screening of Products and Hearth Layer

Two product conveyor fed from either machine will convey the fired pellets to the screening house where three double deck screens (2 operating) will remove the — 6.3 mm fines for regrinding and the 14 to 18 mm pellet part of which will be recirculated by a common conveyor to the Hearth Layer Bin at the feed end of each Indurating machine. Since hearth layer must be available at all time an emergency pile is provided. A conveyor will stack hearth layer quality pellet on a pile from where, they will be reclaimed by mobile equipment to a hopper above the hearth layer conveyor. The excess of hearth layer size pellets and all the rest of the +6.3 mm pellets will join on a conveyor and be transported to a surge pile. The -6.3 mm pellet chips will be conveyed to a bin and fed to a ball mill to be ground and recycled to the thickeners.

9.7.2 Dedusting and Gas Cleaning.

To minimize fugitive dust emissions to atmosphere and provide protection to the workforce and the equipment, the material handling systems such as the hearth layer, machine discharge and screening house are equipped with Ducon type wet dust collectors. The collected dust from the systems, consisting primarily of iron oxide, is recycled and pumped to the concentrate thickener and mixed with the fresh concentrate slurry coming from the pipeline.

The indurating process waste gas will be cleaned in a multiclone to remove coarse dust and an electrostatic precipitator (ESP) to remove fine dust and clean the waste gas. Dust from collected by the precipitator and multiclone will be pumped to the concentrate thickeners

9.7.3 Auxiliary Heating/Cooling System

The lintel cooling system recirculates treated water from the furnace lintels to an indirect heat exchanger where cooling water chills the closed loop water for reuse back in the

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lintel. There is one operating and one stand-by heat exchanger for the lintel cooling water system.

All the lines are heat traced from the suction heater at the bunker C tanks through to the burners with either steam or heating cables to help the oil flowing.

The steam will be generated in bunker C fired boilers located in a separate building. It will supply heat for the pellet plant slurry heating as well as heating pellet plant offices and other service buildings. The Port office will be heated with electricity.

9.8 Auxiliary Systems

9.8.1 Additive Grinding

Bentonite will be received by ship at the Port of Sept-Îles and will be delivered to the pellet plant bentonite storage building by trucks. It will be reclaimed by mobile equipment as needed to fill the grinding mill day bin. A dry grinding roller mill (30 tph) will be used to grind the Bentonite to 80% minus 200 Mesh. The grinding mill has been sized to have enough capacity to grind Bentonite only on day shift. If other additives are considered later on the mill will have enough grinding capacity using the other 2 shifts. The ground product will be stored in a bin at the grinding mill location from where it will be transferred to the mixing area day bins by Fuller-Kinyon pumps. The bentonite will be metered out from the day bins in the desired ratio to the concentrate tonnage for each mixer.

9.8.2 Chips Regrind and Limestone Preparation

Induration plant clean-up material and chips from broken pellet will be metered out on a batch basis from a surge bin and fed to a ball mill in closed circuit with a cyclone. The cyclone overflow slurry will be pumped to the concentrate thickeners. The cyclone underflow will be returned to the ball mill for further grinding. It is likely that at the feasibility level the chip regrind will be deleted and the pellet chips will then sold along with the regular pellet. This will remove a recirculating load and allow a proportional reduction of the feed tonnage for the same final production. With balling drum in closed circuit with a roller screen, a very tight size distribution is expected and chips should not exceed 0.5%. Crushed limestone will be stored in a silo and ground on a batch basis in the ball mill. The ground limestone will be pumped to an agitated storage tank and will be metered out as required to the slurry tanks.

9.8.3 Water Balance

The 1,268 tph of concentrate will be received from Adriana's slurry pipeline at 65% solids and include 683 m3/h of water. This will peak at 936 m3/h when only water is pumped to maintain the flow in the line while batch operating. This slurry will go to the thickeners along with reground chips and the slurry from the precipitators, scrubbers, and floor wash-downs collected through pumps. The thickener will overflow to a process

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water tank and some of the water will be used in the plant. The only loss out of the system is through evaporation in the induration process. This loss is calculated at 146 m3/h, with cake at 10% humidity. The evaporation loses from the thickeners and the slurry tanks are negligible. The excess of process water will range from 537 to 790 m3/h when the plant is in operation and could reach 936 m3/h when the plant is down and a batch of water is being received. A treatment plant is provided for further clarification and polishing off of this effluent. The sludge will be returned to the process while the clean water meeting all regulatory requirements will be piped to the Bay of Sept-Îles. The fresh water usage is estimated a 240 m3/h. most will be used to cool the lintel water, and in various heat exchangers, gland seal, vacuum pumps etc. Some will also be sparged directly in the slurry tanks as steam to warm up the slurry and improve filtration. Eventually, all of the excess water will also have to be treated and disposed of. Table 9.1 gives a material and water balances for the pellet plant.

Table 9.1 - Material and Water Balance at 10 Mtpy

Adriana Resources Inc. Material Balance Slurry Pipeline and Pellet Plant

Flow Water Solids Total Solids Pull) ' pulp. Process -- No. ITEM Solids t/h t/h % MI sp.gr. M'fi 9Pm Pulp sp.gr. Water, M'/h Pellet plant Concentrate Thickener Pipeline Discharge (Thickener Feed) 1268 683 65.0 1951 5.00 936 4129 2.08 683 Recirculation (PP Fines + Wash Down = 3.5%) 41 86 32.4 127 5.00 94 413 1.35 Recirculated filtrate 3 370 0.7 373 5.00 371 1634 1.01 Total thickener Feed 1312 1138 53.5 2450 5.00 1401 6177 1.75 Thickener Underflow (to Storage Tank) 1312 510 72.0 1822 5.00 772 3406 2.36 Thickener Overflow 628 628 628 2771 1.00

Blast Furnace Acid Pellet Storage Tank Feed (1268 fresh concentrate) 1312 510 72.0 1822 5.00 772 3406 2.36 Limestone 3 6 34.2 9 2.70 7 30 1.27 Dolomite 0 0 34.2 0 2.70 0 0 0.00 Filter Feed 1315 516 71.8 1830 4.99 779 3437 2.35 Filter Cake (10% moisture) 1312 146 90.0 1458 4.99 409 1802 3.57 146 Filtrate (0.2% solids) 3 370 0.71 373 4.99 371 1634 1.01

Water Balance Water in 683 m3/h, from slurry pipeline Water out 146 m3/h, evaporated in induration Surplus Min. 537 m3/h 2364 usgpm Surplus Max. 936 m3/h 4123 usgpm Fresh Water 240 m3/h 1057 usgpm Max + Fresh Water 1176 m3/h 5179 usgpm Note 1: Gland seal water, compressors and vacuum pumps water and fan heat exchanger water will need to be adeded Note 2: Induration machine lintel cooling heat exchanger will need fresh water and make up may be needed Note 3: Steam plant make up water will need to be added. Note 4 Precipitators, Scrubbers, ball mill and balling drums will use recycled process water

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9.9 Pellet Handling

9.9.1 Surge Pile

The surge pile has a capacity of 4,500 live tonnes. A stacking tube 13 meter high, in the center of the pile supports the head end of the product conveyor. Openings at various heights in the wall of the tube and deflector trays inside break the fall distance of pellet and minimize the degradation. In case of problem with the reclaimers, conveyors or shiploader system, a bulldozer can push the pellet away from surge pile and the plant can be kept in operation. Five gravity feeders, including one directly under the stacking tube will feed a 2,500 tph conveyor running in a tunnel under the surge pile. This conveyor will feed a conveyor moving the pellet to a stacker in the stockyard. The surge pile was sized to have a live storage some of 3.6 hours of full production.

9.9.2 Stockyard

The stockyard starts at the transfer point of the conveyor coming from the surge pile and includes a lofting slewing stacker of 2,500 tph and 2 reclaimers, each with capacity up to 5,000 tph, both straddling a feed and a reclaim conveyor on a 3 meter high berm running the length of the stockpiles. The stockpiles are1,000,000 tonnes each, 750 meter long, 69 meter wide and 18 meter high and are located on either side of the conveyors and have enough capacity to allow for future production of various types of fluxed pellets. The stacker capacity was set at 2,500 tph so that in 3.7 hours it can empty completely the live stock leaving enough free time for minor maintenance. The shore surge bin near the port is located 3,000 meter away. The costs of the conveyors from the stockpile to the surge bin at the shiploader are included in the pellet plant capital costs. At 15 millions tonnes the capacity of the stacker will have to be increased to 3,500 tph. The surge pile capacity is acceptable. It will be filled up in 2.4 hours and emptied in 2.9 hours.

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10.0 PORT AND SHIPLOADING FACILITIES

10.1 Design Criteria

The port facility located in the Pointe-Noire area of the Baie de Sept-Îles must be able to operate year round. The major design criteria retained at this stage is to accommodate ships up to 250,000 DWT and have a total loading capacity of 10,000 tonnes per hour. A typical layout is shown in Figure 10.1.

All systems will comply with relevant Canadian, provincial and local environmental guidelines, laws and regulations. Health and safety rules and regulations will be strictly enforced. Environmental impact mitigation measures are addressed in greater detail in Section 11 of this Study.

10.2 Infrastructure

Along with the ground preparation, administration buildings, effluent and waste water treatment plants, railways and buried services accounted for in the pellet plant section, the infrastructure includes mainly access roads, gatehouse with services and a 800 m surrounding berm.

10.3 Design Consideration

The use of two shiploaders with a smaller capacity was preferred to one heavier shiploader. This allows for slower loading capability, which is needed for smaller ships and also for balanced and steady loading capability which is better for large ships. Furthermore, the redundancy lowers the possibility of shut down and the cost of procurement and installation may be less.

The use of quadrant loaders was preferred to travelling loaders. This allows for coverage of all the conveyors and it shows some benefits with the increasing emphasis on environmental protection.

10.4 Marine Structures

The marine structures consist essentially of berthing and mooring dolphins with access ramp, quadrant beam piles and caps supporting rail and catwalk with conveyor supports and pivot piles and caps. Also, a vehicle access is included.

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10.5 Materials Handling

The facilities include a 3 km conveyor having 10,000 tonnes per hour capacity, a 1,500 tonnes surge bin on the beach including the foundations, two 5,000 tonnes per hour loadout conveyors, two 5,000 tonnes per hour transfer conveyors and two 5,000 tonnes per hour loading capacity shiploaders. The estimate allows for 2,500 m of trestle. All electrical and control are included in the cost. Good maintenance practices will be implemented through environmental management plans to ensure that the clearing and maintaining of the wharf area will be performed without pushing the excess of a cumulated material over the edge of the wharf into the bay.

10.6 Options for Future Consideration

a) Island

b) Transshipper

10.7 Service Vehicles

Maintenance and service vehicles as well as tools are provided and accounted for in the pellet plant section.

10.8 Diesel and Bunker Fuel

Fuel unloading, dispensing and storage facilities will be provided by a local supplier in respect of all environmental considerations.

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11.0 ENVIRONMENT CONSIDERATIONS

11.1 Introduction

The Otelnuk Iron Project includes the following components:

• A mine site, camp and related infrastructures located approximately 200 km North- West of Schefferville and 8 km South-West of Lac Otelnuk in the Province of Québec (Québec); • A crusher, concentrator and tailings disposal area located near the mine site in Québec; • An access road from Schefferville to the mine site; • A fresh water intake from Lac Bricot; • A concentrate transportation system from the mine site to Sept-Îles: a slurry pipeline from the mine site to Sept-Îles (Québec) with a proposed routing entirely located in Québec or transportation by railway using a new line constructed between Lac Otelnuk and Schefferville and onward to Sept-Îles using existing railway lines; • A 315 kV transmission line, 240 km long, from Brisay in Québec; • A pelletizing plant in Sept-Îles (Québec); • A stockyard, dock and year-round ship-loading at Sept-Îles (Québec).

11.2 Environmental Authorizations Requirements

11.2.1 Environmental Assessment (Provincial)

The Environmental Quality Act (EQA) has three (3) mechanisms of authorization for the projects subjected for approval from the Québec Ministry of Sustainable Development, Environment and Parks (MSDEP). The simplest mechanism which refers to paragraph 22 of the EQA requires an environmental evaluation, but without public hearing. The longer process framed by paragraph 31.1 and 31.9 of the EQA, subjects the projects located in the Southern part of Québec to the Environment Assessment Review Process, which requires the presentation of project notice, the preparation of an Environmental Impact Assessment study and public hearings on the project.

The mining and concentrating activities of the Otelnuk Iron Project located approximately 200 km North-West of Schefferville, Québec, and part of the pipeline fall within the territory governed by the James Bay and Northern Québec Agreement (JBNQA). This territory is subdivided into three (3) areas the Northern Québec area (North of the 55° latitude), the James Bay area (South of the 55° latitude) and the Moinier area South of the 55° latitude but East of the James Bay area. Several project components are expected to be subjected to this mechanism of authorization which refers to paragraphs 168 to 204 of the EQA and involves the active participation of the Cree, Inuit

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and Naskapi communities. As stipulated in Appendix A of the EQA mining projects, roads exceeding 25 km, electrical transmission lines exceeding 75 kV, sewage systems and railroads are subject to the Environmental and Social Impacts Evaluation and Exam Process for the area north of the 55° latitude. Part of the pipeline will fall within the Moinier area as well as project components listed in Appendix A of the EQA (possibly roads and sewage systems) will be subjected to the Environmental Evaluation Process in force in the Southern Québec area.

The Environmental and Social Impacts Evaluation and Exam Process for project North of the 55° latitude begins with the submission of a project notice, and the preparation of an Environmental and Social Impact Assessment report based on the Commission de la qualité de l'environnement Kativik (CQEK) (Kativik Environmental Quality Commission) guidelines. This commission is responsible for the evaluation and exam of the Environmental Study, the preparation of public hearing and the approval or reject of the project.

The Southern portion of the pipeline is expected to require a Certificate of Authorization under Paragraph 22 of the EQA. The pellet plant and the port facilities are expected to be subjected to the Environment Assessment Review Process for the Southern part of Québec.

11.2.2 Environmental Assessment (Federal)

Federal laws and regulations that could have significant direct impact on the proposed project include the Canadian Environmental Protection Act (CEPA), the Canadian Environmental Assessment Act (CEAA) and the Fisheries Act. The Fisheries Act applies to any body of water that may contain fish. It prohibits any work or undertaking that results in harmful alteration, disruption or destruction of fish habitat. It prohibits the deposition of deleterious substances into water body that are fish habitats. The Department of Fisheries and Oceans applies the "no net loss" guiding principle, so that unavoidable fish habitat losses as a result of development projects are balanced by newly created and/or restored fish habitat.

The Metal Mining Effluent Regulation (MMER), under the Fisheries Act, provides maximum acceptable concentration for mine effluent and dictates requirements in terms of Environmental Effects Monitoring Studies (EEMS).

Regarding the CEAA and Environmental Impact Assessment's requirements, the project components that are expected to trigger the CEAA process include water crossing, water intake from a lake or a river, wastewater discharge to a water body and any work that could affect an endangered species, a migratory bird or their habitat.

This project is expected to require a comprehensive environmental study since some of the project components include the construction of a marine terminal designed to handle vessels up to 250,000 DWT.

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11.2.3 Harmonization

The Canada-Québec Agreement on Environmental Assessment Cooperation has been announced in May 2004. The agreement promotes a better coordination of the two environmental assessment processes (Federal and Provincial) in order to reduce overall delays. Through this agreement, information is allowed to be exchanged between the two levels of government and a joint review panel may be used to conduct hearings if necessary.

However, a recent ruling from the Superior Court of Québec stipulates that the CEAA does not apply in Northern Québec where the 1975 JBNQA takes precedence. It is therefore expected that some of the project components (mine site, railway, access road and part of the pipeline) will not be submitted to the CEAA process.

11.2.4 Other Environmental Permits

a) National Energy Board (NEB)

An approval from the National Energy Board is generally required for pipelines more than 40 km long that connects a province with any other province or provinces. Even though the pipeline is more than 40 km in length, its routing will be limited to the Province of Québec and is therefore not expected to require an approval from the National Energy Board.

b) Other Environmental Permits

Other environmental permits expected to be required include:

Paragraph 32 and 32.1 of the EQA: authorization or permits for waterworks, water supply intake, sewage treatment facilities, etc; Paragraph 48 of the EQA: authorization or permits for air pollution control devices; • Paragraph 232.2 of the Québec Mining Act: rehabilitation and restoration plan for the mining activities; • Petroleum product storage authorization; • Authorization from the Agricultural Land Protection Commission in Québec; • Authorization under the Forest Act; • Construction permits; • Water intake/discharge permits.

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11.2.5 First Nations

As mentioned earlier the CQEK is in charge of the evaluation and exam of projects located within the territory governed by the JBNQA North of 55° latitude. Upon reception of the project notice, the CQEK prepares guidelines for the preparation of the Environmental Impact Assessment (EIA), reviews the EIA, determines if public hearings within the First Nations communities affected by the project are required and approves or rejects the project.

Some details regarding First Nations closest to the project are given in Table 11.1.

Table 11.1 — List of First Nations and Location

Territory Nation Population Location Kawawachikamach Naskapi 581 15 km North-East of Schefferville Matimekosh is located 510 km North of Sept-Îles and Lac-John is Matimekosh-Lac-John Innu 786 3.5 km from Matimekosh and Schefferville Uashat is located West of Sept- Uashat and Maliotenam Innu 3,220 Îles and Maliotenam is 16 km East of Sept-Îles

It should be noted that Impact Benefit Agreements (IBA) and royalty sharing agreements between First Nations and mining companies have increased in the recent years in Canada. These IBA generally covers financial incentives to improve employment, training or community infrastructure and services for First Nations. IBAs have been reached for several mining projects including Voisey's Bay (Newfoundland and Labrador), Raglan (Québec), Dona Lake (Ontario) and Musselwhite (Ontario).

-- 11.2.6 Challenges Regarding Approval Processes

The following is a list of topics that should be taken into consideration during the environment approval process:

The Project Description/Notice should be completed as soon as the project components are well defined and should be submitted to both the Federal and Provincial/First Nations approval processes; Environmental baseline studies should be initiated early in the project; The Southern part of the project would need to be submitted to both Federal and Provincial approval process. An agreement exists between the Federal approval process and the Provincial approval process outside JBNQA to use the same documentation for both regulating agencies, but a recent ruling has indicated that

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the Canadian Environmental Assessment Agency (CEEA) will not apply to the JBNQA territory; The Project Stakeholders should be identified early in the project and their issues/potential impacts/concerns should be monitored closely. Government, municipalities, environmental associations, health and social services should be included in the list of project stakeholders; • Environmental testing should be considered and addressed during any testwork related to the process: consideration should be made for the environmental characterization of the solid and liquid fraction of the tailings, the waste rock, and any other wastes/residues produced by the processing/mining activities. Testing should include chemical stability, heavy metal leaching, acid rock drainage, preliminary toxicity testing of effluent, etc.; • The selection of the tailings pond location will need to include environmental considerations. Several alternatives will need to be presented in the Environmental and Social Impact Assessment. Provisions will need to be made in the design of the tailings pond for sufficient volume to allow adequate retention time and contained design flood.

11.3 Preliminary Potential Impacts

11.3.1 Description of Local Environment

The Lac Otelnuk property is located 200 km North of Schefferville, in the Northern Québec area. The property is accessible only by air while Schefferville is accessible by train.

The average yearly mean temperature for the area is -5.3°C. The average temperature in July reaches 12.4°C while for January it averages -24.1°C.

According to precipitation data gathered for the Schefferville weather station, the average annual precipitation is 822.9 mm. Rain precipitation is more intense in July with an average of 106 mm of water. Snow precipitation is registered throughout the year but is more important between October and May where the average monthly snow precipitation is generally greater than 42 mm (expressed in mm of water).

The area is poorly drained with extensive swampy areas and is characterized by a forest cover of black spruce and balsam fir with a ground cover of lichen, low-growing willow and Arctic birch shrubbery.

The pipeline and railroad routing are taking into account the location of sectors identified for future protected areas or classified as exceptional forests. The three (3) zones identified for future protected areas nearest to the Lac Otelnuk project are Canyon Eaton, Collines ondulées and Lac Cambrien (see Figure 8.1).

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11.3.2 Preliminary Potential Impacts

The following is a preliminary description of potential impacts related to specific components of the project: mine/concentrator site, concentrate transportation, pellet plant, stockpiling and shipping. Other potential impacts such as sanitary wastewater treatment, solid waste disposal and used oil disposal, are addressed and provisions were made in the capital cost estimate for a solid waste incinerator, sanitary wastewater treatment based on biological contactor technology and filtration system for used oil.

a) Mine/Concentrator Site

Potential impacts related to the construction and operation of an open pit mine include site preparation and uncontrolled clearance, quality of surface water (maintenance activities, potential of Acid Rock Drainage (ARD), tailings management, etc.), the quality of the ambient air (crushing, truck haulage, etc) and loss of ecosystem.

A review of existing drillhole logs indicated that pyrite has been observed in drillhole 190-1, 73-430-6 and 73-350-4 and it is recommended to conduct a Metal Leaching (ML) and ARD assessment program in order to rule out any possibility of ML and ARD. The intent is to determine the ML/ARD potential for waste rock, low/high grade ore stockpiles and tailings and to determine the Neutralization Potential of other type of waste material that could be eventually used during reclamation. For the purpose of this conceptual study the project is considered non ARD generating but as mentioned earlier a complete ML/ARD will need to be undertaken to satisfy the stakeholders concerns.

A preliminary assessment of tailings management requirements was investigated and two (2) potential sites for tailings disposal were identified: Concession Option and Adanys Option. The final selection of the tailings disposal site will need to take into account the space required to store tailings for a period of 20 years with possibility of future expansion, the potential loss of fish habitat as well as flora and fauna ecosystems, financial considerations, distance from the concentrator, etc. Since several lakes and ponds are present within the area, it is expected that tailings disposal will require to fill existing lakes or ponds and compensation for loss of fish habitat will need to be addressed. The Concession Option, shown on Drawing S1805-2, corresponds to the smallest footprint with an area of 2,600 ha but will be required to fill Concession Lake. The area covered by the Adanys Option, is about 45% larger with a superficy of 3,800 ha with lakes and ponds however smaller than Concession Lake. It is recommended to conduct baselines studies for these two (2) tailings disposal options. The hydrogeology and hydrology of the area will also need to be studied.

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Typical mitigation measures include:

• Preservation of existing vegetation whenever possible; • Ensure controlled discharge of any mine effluent to the environment through one final effluent and in compliance with acceptable standards.

b) Concentrate Transportation

Potential impacts related to the concentrate transportation include accidental spill risk of water contamination, loss of flora and fauna ecosystems, increased pressure on hunting and fishing resources, etc. Two (2) options are considered to transport the concentrate from the mine/concentrator site to Sept-Îles. The first option consists in transporting the concentrate slurry by way of a 700 km pipeline from the concentrator to the pellet plant located in Sept-Îles. The second option consists in transporting the filtered concentrate by railroad from the mine/concentrator site to Schefferville and to Sept-Îles through the QNS&L railway. The final pipeline routing will need to be revised based on findings from the baseline studies.

c) Pelletizing

Potential impacts related to the pellet plant include the concentrate slurry filtration and the pelletizing process.

The concentrate slurry filtration will generate a filtrate that will need to be treated before its discharge to the Bay of Sept-Îles. Water will be pumped to the slurry thickeners and clarified. As much as possible of the clarified water will be recycled to the process and the excess will be pumped to a process water treatment plant for further clarification and polishing. The clean water meeting all regulatory requirements will be piped to the Bay of Sept-Îles.

The pelletizing process includes all mitigation measures related to air quality control such as dust collectors and electro-static precipitator in order to ensure compliance to air quality regulations. Dust as well as floor wash-down will be collected in sumps and returned to the process.

d) Stockpiling and Shipping

Potential impact related to the stockpiling and shipping of pellets will include air quality during stockpiling and conveying activities, dredging and disposal of dredging material, disturbance of marine ecosystems, etc.

11.3.3 Closure Plan

Preliminary closure plan costs have been estimated based on the rehabilitation of the tailings disposal area and the waste rock disposal area. Planned rehabilitation and closure costs are limited to re-sloping and re-vegetation.

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Provisions should be made in the financial analysis of the Project for the disbursement of 70% of the estimated cost of rehabilitation as per the "Guidelines for preparing a mining site rehabilitation plan and general mining site rehabilitation requirements" published by the Québec Ministry of Natural Resources in collaboration with the Ministry of Environment.

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12.0 PROJECT IMPLEMENTATION SCHEDULE

The project schedule provided at Figure 12.1 has been prepared assuming that all activities are carried out without interruption and that financing is made available as required. The schedule starts at the end of the first quarter of 2006, with the ongoing scoping study Phase 1 activities (Preliminary Capital and Operating Costs), and extends to the second half of 2015 when commercial production starts.

12.1 Summary

The Scoping Study should be completed at the end of the third quarter of 2007 after execution of the exploration Phase 1.

Assuming that the Exploration Program Phase 2 is completed near the end of 2007, the Pre-Feasibility Study would be completed at the end of the 31-d quarter of 2008 and the Feasibility Study could be completed in early 2010.

Starting in the second quarter of 2006, the Environmental Studies and Assessment Process would be completed by mid 2010, allowing the permits application for construction to be completed near the end of 2010.

The Engineering and Procurement could begin right after the Environmental Assessment process. The construction must await all permits to be granted and therefore would begin near the end of 2010, extending after mid 2015 when the production could begin.

12.2 Exploration

The exploration scheduling is based on the programs proposed in the WGM Report of November 24, 2005.

12.2.1 Exploration — Phase 1

The program includes 8,500 m of diamond drilling. This phase would take roughly 11 months including the mobilization, the testing and the report. Starting in mid summer 2006, the Phase 1 of exploration would be achieved by the end of the second quarter of the second quarter of 2007.

12.2.2 Exploration — Phase 2

The drilling program includes 4,000 m of diamond drilling. This phase would take roughly 5 months, beginning mid 2007 and ending in the last quarter of 2007.

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12.2.3 Scoping Study

The first phase of the scoping study is now completed and covers all areas of the project except for the mining. The scoping study Phase 2 will be completed following the result of the Phase 1 of exploration, thus ending by the third quarter of 2007.

12.2.4 Pre-Feasibility and Feasibility Studies

The pre-feasibility study could start around 3 months after the beginning of exploration Phase 2 and would last 12 months. The feasibility study would follow immediately and last 18 months. The overall feasibility process would end in the first quarter of 2010.

12.3 Environmental Aspects and Permitting

12.3.1 Environmental Studies

Environmental studies cover environmental baseline studies and Environmental Impact Assessment (EIA); they would last about 24 months. The project notice to Federal and Provincial Government Authorities will need to be submitted early in the Pre-Feasibility Study. An overlap of about 7 months with the Feasibility Study is required because some information needed to complete the Feasibility study will only be available after the completion of environmental studies.

12.3.2 Environmental Assessment Process

The environmental assessment process consists of the review of the EIA by the Government authorities as well as the public hearing process. It follows immediately the environmental studies and is expected to be completed about 3 months after the feasibility study. It would last 14 months, ending by mid 2010. At the end of the process, all aspects will have been approved and permits can be applied for.

12.4 Permits for Construction

Several permits are required for construction. The application process follows immediately the environmental assessment process and lasts about 4 months, ending in the last quarter of 2010.

12.5 Engineering, Procurement and Construction

12.5.1 Engineering

Although the construction cannot begin before all required permits are granted, it has been assumed that engineering will begin near mid 2010 when the environmental assessment is completed. The engineering would last 30 months.

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12.5.2 Procurement

The procurement starts 3 months after the engineering when some packages are ready for the bidding process. The first contracts are awarded shortly after. The procurement would last 20 months after which almost all the project management will be done from site.

12.5.3 Construction

The construction of the power transmission line and of the access road to Lac Otelnuk could begin in early 2011 when all permits are granted.

The duration of construction of the access road to the Lac Otelnuk site has been estimated at 18 months.

The mine development follows immediately after the access road is available and lasts about 16 months. Mine development material will be required for tailings dam construction and site preparation. The concentrator construction starts 3 months after the mine development and last 36 months. This sequence is on the critical path of the construction and ends in the third quarter of 2015.

All other construction activities are independent and are scheduled "as late as possible" based on the finish date of this sequence.

Considering the pipeline option for the concentrate transport, the construction would last 46 month; it is the longest construction activity. Considering the railway option, the construction of the line would last 36 month.

The pellet plant construction would last 37 month and the port installations would last 26 month.

12.6 Production

The start of commercial production is expected by late summer of 2015.

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13.0 CAPITAL COST ESTIMATE

This capital cost estimate was prepared for a base case annual production of 10 Mtpy of concentrate and pellets and for an alternate option considering an annual production of 15 Mtpy of concentrate and pellets.

13.1 Summary of Estimate

For an annual production of 10 Mtpy of pellets, the total capital cost is estimated at $3.9 billion or $3.0 billion respectively when pipeline or railway concentrate transportation are considered. The corresponding costs for an annual production of 15 Mtpy of pellets are respectively $4.6 and $3.7 billion.

_ A summary of the capital cost estimate is given in Table 13.1.

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Table 13.1— Summary of Capital Cost Estimate

26004-2 SCOPING STUDY FOR LAC OTELNUK PROJECT D J y C Capital Cost Estimate — — `~ ! A .,U` a e 07-juif-06

\ ~ D _ 10MTPY 15MTPY Item Descrf ptoi — PIPELINE RAILWAY PIPELINE RAILWAY — OPTION OPTION OPTION OPTION DIRECT COST OFFSITE ACCESS AND TRANSPORT INFRASTRUCTURE $97 772 000 $97 772 000 MINE INFRASTRUCTURE & EQUIPMENT $0 $0 SITE INFRASTRUCTURE & EQUIPMENT $112 230 000 $114 209 000 CRUSHER $83 055 000 $137 514 000 CONCENTRATOR $197 711 000 $286 680 000 MINE SITE WATER SYSTEMS, Potable, Sanitary, Process, Fire $9 519 000 $12 045 000 TAILINGS $63 054 000 $78 958 000 SEE OPTIONS BELOW PELLET PLANT $597 331 000 $889 822 000 PORT INSTALLATION $175 537 000 $175 862 000 ELECTRICAL POWER SUPPLY $362 835 000 $362 835 000 SUB-TOTAL DIRECT COSTS $1 699 056 000 $2 155 710 000 CONCENTRATE TRANSPORT SYSTEM - PIPELINE $1 098 709 000 $1 136 791 000 TOTAL PIPELINE OPTION $2 797 765 000 $3 292 501 000

CONCENTRATE TRANSPORT SYSTEM - RAILWAY $433 563 000 $497 548 000 TOTAL RAILWAY OPTION $2 132 619 000 $2 653 258 000

INDIRECT COSTS

EPCM (12% of direct cost) 12,0% $335 732 000 $255 915 000 $395 101 000 $318 391 000

Owners costs Exploration $6 000 000 $6 000 000 $6 000 000 $6 000 000 Environmental studies $6 700 000 $6 700 000 $6 700 000 $6 700 000 Pre-Feasibility / Feasibility studies (— % of total cost) 0,50% $18 000 000 $15 000 000 $21 000 000 $18 000 000

Equipment Spares (— % of equipment) 4,0% $24 309 000 $24 729 000 $33 617 000 $35 037 000 First fill (— % of equipment) 1,0% $6 597 000 $5 723 000 $8 514 000 $8 106 000 Construction Indirects (% of direct cost) 2,5% $69 945 000 $53 316 000 $82 313 000 $66 332 000 Camp Room & Board (% of installation) 9,0% $4 777 000 $4 860 000 $6 974 000 $7 080 000 Commissionning (— % of equipment) 2,5% $16 493 000 $14 306 000 $21 285 000 $20 263 000 Insurance (% of direct cost) 1,0% $27 978 000 $21 327 000 $32 926 000 $26 533 000 Owners costs $180 799 000 $151 961 000 $219 329 000 $194 051 000

Contingencies (20% of direct cost) 20% $559 553 000 $426 524 000 $658 501 000 $530 652 000

TOTAL INDIRECT COSTS $1 076 084 000 $834 400 000 $1 272 931 000 $1 043 094 000

TOTAL COST $3 873 849 000 $2 967 019 000 $4 565 432 000 $3 696 352 000

REVISION Description Date A For review 8-May-06 B For Scoping Study Prelim. Cap.Cost - Draft Report 7-Jun-06 C For Scoping Study Prelim. Cap.Cost - Final Report 7-Jul-06

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13.2 Scope of Estimate

13.2.1 Included Scope of Work

Except for the mine, the capital cost estimate includes the entire engineering, construction, installation and development work required for starting up a mining operation. It involves building, commissioning and starting up a concentrator, a slurry pipeline, a pellet plant, product storage and shiploading facilities, and any other facilities required to produce and ship the yearly production (10 or 15 Mtpy).

The facilities will consist of the following: a) A crushing facility

b) A concentrator

c) Infrastructure at the mine site, where the crushing and concentrating facilities will be located, at the booster pumping stations of the pipeline or optionally at the freight yards and loading/unloading facilities for the railroad, at the pellet plant and at the product storage and shiploading facilities, including:

• Access road; • Site roads and yards; • Service buildings for offices, laboratories, infirmary, garages, warehouses, reagent storage, gatehouse, mine dispatch, explosive storage and batch plant; • Fuel storage and dispensing facilities; • Electrical transmission systems, substations and distribution networks; • Camp with sleeping accommodation and mess hall; Water treatment and distribution systems; Sanitary sewage and wastewater treatment systems; Fire protection systems; Heating systems; Tailings pipeline and containment site; Airstrip and landing pad for planes and helicopter, including transit and servicing facilities as well as safety and operation equipment; Service equipment and vehicles.

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d) A slurry pipeline complete with main and booster pumping stations, and as an option railway to Schefferville and freight yards. Rolling stock maintenance facilities are not included in the present estimate.

e) A pellet plant

f) Pellet stacking, storage, reclaim and shiploading facilities along with port facilities

13.2.2 Scope Excluded

At this stage, the estimate excludes the mine development, infrastructure and the mining equipment to supply ore to the concentrator.

13.2.3 Options

a) In the concentrator, SAG mill grinding was considered as an option to HPGR. A difference of more than $35 M in equipment cost led to the selection of HPGR as the preferred option.

b) Railway to Schefferville, freight yard and concentrate loading facilities are considered as an option to the pipeline concentrate transportation. Only one of those options will ultimately be retained.

13.3 Basis of Estimate

13.3.1 Date

Capital cost estimates were based on prices for equipment and materials and salary rates accurate for the first quarter of 2006.

13.3.2 Currency

Estimates are shown in Canadian dollars ($CAD). Conversion from US dollar ($USD) prices was made at $0.85 USD per $1.00 CAD.

-- 13.3.3 Accuracy

Based on the quality of information obtained from outside sources and from Met-Chem's in-house databank, the capital cost estimate is considered to have an accuracy of ± 30% with the exception of the pipeline for which Chinook Engineering Ltd. could not achieve better than ± 50% due to limited ground information available.

13.3.4 Cost Elements Sources

In preparing the estimate, two categories of costs were developed, direct costs and indirect costs.

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a) Direct Costs

The direct cost of equipment, materials and labour for the construction of the facilities were based on the site layouts and process diagrams developed during the study, the list of major mechanical process equipment, a description of major electrical equipment, and the estimated dimensions of the larger buildings and structures.

The direct cost estimate is also based on the assumption that equipment will be purchased at competitive rates and that erection and construction work will be awarded in set packages on a competitive basis.

Four major methods were applied to appraise the direct costs:

i) The Plant Component Cost Ratio method from the Capcost manual published by the CIM. This method is also known as Factored Estimate.

For the crusher and concentrator, the cost of equipment was based on quotes provided by potential suppliers as well as in-house data which reflect experience from previous similar work. A factor was applied to cover the freight and then specific factors were applied to the delivered equipment cost to appraise the overall area cost. Direct cost include civil work and buildings, equipment procurement, delivery and installation, process piping material and labour, electrical and instrumentation material and labour, and plant auxiliaries and services.

ii) Estimates obtained from specialised firms

Estimates were obtained from specialised organisations for the Tailings, the Pipeline concentrate transportation or optionally Railway concentrate transportation, and Port installation.

The cost of the 315 kV power line to Lac Otelnuk was provided by Hydro- Québec Distribution.

iii) Quantities and unit cost method

For the following areas, unit cost from in-house database were applied to quantities calculated from general layout: Offsite access and transport infrastructure, Site infrastructure and equipment, Mine site water system and Electrical power supply.

iv) Costs for the pellet plant

Cost of the pellet plant was derived from previous studies for similar plants as well as recently published data on the Samarco 7.25 Mtpy pellet plant.

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b) Indirect Costs

The indirect costs include:

• EPCM • Owner's costs including: — Exploration; - Environmental Studies; - Pre-Feasibility and Feasibility Studies including all relevant metallurgical testwork, site and pipeline geotechnical studies, etc.; - Equipment Spares; - First Fill; - Construction Indirects; - Camp Room & Board; - Commissioning; - Insurance.

• Contingency Three methods were used to determine the indirect costs as detailed below:

i) Figures estimated by others

The cost of Exploration was provided by Adriana.

ii) Detailed estimate

The Environmental Studies cost was estimated by determining the scope of the studies, listing the general activities and estimating the costs based on in- house database.

iii) Factored estimates

The following indirect costs were estimated by applying factors to some or all of the project costs based on Met-Chem experience in providing services for similar projects or based on factors used for similar studies.

Expected costs for EPCM including project management, detailed engineering, procurement and construction management (12% of total direct costs). • The Pre-feasibility and Feasibility Studies (0.5% of total project cost). • The Construction Indirect covers costs for setting up the site as office trailers and equipment, owner's management personnel, temporary water supply and electricity services, communications, security guard services,

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safety management, etc. It also covers the permits and authorizations required by government agencies and regulatory bodies. A factor of 2.5% was applied to direct costs. The Equipment Spares, the First Fill and Commissioning costs were established by applying appropriate factors (4%, 1% and 2.5% respectively) to the process equipment cost. • The Camp Room and Board cost was established by applying a factor of 9% to the installation cost of the process equipment. • The Contingency covers undefined items or work that needs to be done or cost elements which will be incurred as part of the defined scope of the work covered by the estimate which cannot be anticipated or explicitly described when the cost estimate is made due to a lack of complete, precise and detailed information. For this scoping level study, the Contingency cost was established at 20% of the total direct cost of the project. 13.4 Exclusions

The following items are not included in the cost estimate:

• Cost increases due to the indexing of wage rates, the price of materials or the cost of equipment; • Cost increases resulting from fluctuations in currency exchange rates; • Working capital; • Project financing and interest during construction; • Taxes and duties.

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14.0 OPERATING COST ESTIMATE

Estimated operating costs for the project are presented in the following paragraphs for yearly productions of 10 and 15 million tonnes per year of concentrate at Lac Otelnuk and corresponding productions of 10 and 15 million tonnes of pellets at Sept-Îles.

With the exception of mining, all areas of the project are covered.

14.1 Summary of Estimated Operating Costs

A summary of the operating costs estimate for the project without mining is provided in Table 14.1.

Costs for concentrate transportation between the Lac Otelnuk concentrator and the Sept- Îles pellet plant are provided for a pipeline option and a railway option but only one of these options will ultimately be retained for the project after required trade off analysis is completed.

Table 14.1 - Summary of Operating Costs Base Case Alternate Option (Concentrate/Pellets at 10 Mtpy) (Concentrate/Pellets at 15 Mtpy) Description ($000,000)/year $/tonne pellets ($000,000)/year $/tonne pellets

* Only one of the 2 options will be selected for transportation of concentrate.

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14.2 Basis of Estimate

The operating cost estimate generally covers the following four major components: manpower, energy including electricity, diesel fuel, heavy fuel oil, propane, etc. consumables such as wear parts and grinding media as well as maintenance and repair costs including replacement parts.

The basis for assessment of the major cost components is as follows:

• Manpower costs are generally based on existing labour agreements on the North Shore for unionized employees for which an average all inclusive yearly cost of $95,000 was used for Sept-Îles employees and $105,000 for Lac Otelnuk employees; corresponding mining industry standard remuneration was used for staff and management; • Electrical power unit costs used are for Lac Otelnuk operations respectively $0.0643/kWh and $0.0708/kWh for productions of concentrate of 10 and 15 Mtpy and for the Sept-Îles operations $0.0438/kWh both for productions of 10 and 15 Mtpy of pellets; fuel costs used were $0.90/litre No. 2 diesel fuel and $0.40/litre for No. 6 Bunker C fuel oil; • Maintenance and repair costs were estimated from manufacturer's data, Met- Chem's database or factored from similar projects.

14.3 Mine

Operating costs for the mine has not been derived in the present study and will be estimated once information from the 2006 drilling program is available for resource evaluation and scoping level study mine design and production planning.

14.4 Concentrator

Table 14.2 and Table 14.3 provide a summary of the operating costs related to the process plant operation including crusher and concentrator.

The operating costs for the 10 Mtpy of concentrate base case were developed to compare options of grinding with high pressure grinding rolls (HPGR) and conventional SAG mill circuit. The HPGR option that has a lower operating cost by some $39.6 M per year also has the lowest capital cost by approximately $35 M (see section 13.2.3 of this report). The operating cost for the 15 Mtpy alternative was developed for the selected HPGR option only. Details of the process plant operating costs are presented in Appendix C.

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Table 14.2 - Process Plant Operating Costs for 10 Mtpy of Concentrate

HPGR (10 Mtpy) SAG Mill (10 Mtpy) Description Total Cost $/tonne of $/tonne of Total Cost $/tonne of $/tonne of ($000,000) Crude Ore Pellets ($000,000) Crude Ore Pellets Labour 28.55 1.00 2.86 40.70 1.42 4.07 Power 31.31 1.10 3.13 58.66 2.05 5.87 Consumables 3.51 0.12 0.35 4.14 0.14 0.41 Maintenance Supplies 18.15 0.64 1.81 17.62 0.62 1.76 Total Cost 81.52 2.86 8.15 121.12 4.23 12.11

Table 14.3 - Process Plant Operating Costs for 15 Mtpy of Concentrate

HPGR (15 Mtpy) Description Total Cost $/tonne of $/tonne of ($000,000) Crude Ore Pellets Labour 41.85 0.98 2.79 Power 50.87 1.19 3.39 Consumables 5.75 0.13 0.38 Maintenance 25.47 0.59 1.70 Supplies Total Cost 123.94 2.89 8.26

14.4.1 Labour

For the three options developed, the amount of people required to cover the operation requirements for the process plant was established. A summary of the planned manpower is provided in the Table 14.4. The proposed workforce can handle all the operation and maintenance of the process area from the crusher operation up to the tailings disposal as well as the laboratory operation.

Table 14.4 - Process Plant Summary Manpower

Category I HPGR (10 Mtpy) SAG Mill (10 Mtpy) HPGR (15 Mtpy) Staff 38 38 38 Crusher 34 17 63 Concentrator 84 96 122 Laboratory 12 12 16 Total 168 163 239

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14.4.2 Power

The power requirement per area has been estimated from the list of process equipment required for each option. Details of the cost of required electrical consumption are presented in Appendix C.

14.4.3 Consumables

The global cost for consumables includes the crusher liners, the liners and balls for the mills, the screens cloths and flocculants. Their cost is estimated based on consumption from similar operating projects, database figures and experience. The laboratory supplies are also included in the consumables. Details are available in Appendix C.

14.4.4 Maintenance Supplies

The replacement parts cost for regular maintenance of the equipment is estimated at 3% of total equipment capital cost.

14.5 Tailings

The cost of labour for tailings management as well as the cost of pumping tailings to the tailings pond are already covered in the concentrator operating costs.

The cost of material is estimated at $100,000 per year to extend the tailings lines for the Concession option for tailings storage.

Reclaim water power costs and make up water power costs have been included in this section and are estimated at $600,000 and $1,000,000 per year respectively for the 10 Mtpy and 15 Mtpy of concentrate options.

14.6 Lac Otelnuk Administration

The Lac Otelnuk site administration costs include all costs not already covered in the operating units such the mine and the concentrator and cover those costs related to the administration and upkeep of the site.

These costs include salaries for the administrative group for function such as human resources, health and safety, accounting and payroll as well as purchasing and warehousing.

Salaries for site services personnel such as road maintenance, building upkeep, general maintenance personnel, airport crew etc.

Site administration costs also include catering, transport of employees (fly-in, fly-out), communications and all other site costs such as material and supplies for safety, offices, camp upkeep, etc.

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These costs are represented in Table 14.5.

Table 14.5 - Lac Otelnuk Site Administration Costs 10 Mtpy 15 Mtpy Description ($000,000) ($000,000) Salaries - Administration 2.30 2.40 Salaries - Services 6.20 7.20 Catering 5.50 6.40 Transport 6.40 7.60 Communications 0.30 0.40 Others 2.00 2.50 Total 22.70 26.50

14.7 Pipeline

The pipeline operating costs cover the cost of labour, electric power for pumps at concentrator and terminal, diesel fuel for generators at booster stations along the pipeline and other costs including maintenance material, water supply, contract services etc. A summary of the annual costs is provided in Table 14.6 and details are provided in Appendix D.

Table 14.6 - Pipeline Operating Costs 10 Mtpy 15 Mtpy Description ($000,000) ($000,000) Labour (33) 3.02 3.02 Electric Power 3.31 5.12 Water Supply 0.40 0.40 Diesel 28.83 28.68 Other 9.22 10.22 Contingency (15%) 6.72 7.12 Total 51.50 54.56

14.8 Railway

The railway operating cost has been estimated following a verbal communication from a representative of the Business Evaluation Group of Iron Ore Company of Canada (IOC).

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For the 10 Mtpy option, an average cost equivalent to $12 per tonne of concentrate is to be considered and an average cost of $11 per tonne of concentrate for the 15 Mtpy option.

Rolling stock maintenance cost is not covered in the above and should be addressed for inclusion in the next phase of the project i.e. Scoping Study.

14.9 Pellet Plant

Annual pellet plant operating costs for productions of 10 Mtpy and 15 Mtpy of acid pellets are respectively $92.80 million and $134.85 million. The distribution of unit operating costs is presented in Table 14.7. The costs are based on operating 2 lines of 5 or 3 lines of 5 Mtpy capacity for each line.

Table 14.7 - Pellet Plant Operating Costs (Acid Pellet)

ADRIANA RESOURCES INC. PELLET PLANT OPERATING COST (Acid Pellet) COST $CAD/t PELLET PRODUCTION LEVEL UNIT USAGE COST 10 M 15 M Bentonite kg 10 $0.100 $1.00 $1.00 Limestone kg 3 $0.035 $0.11 $0.11 Fuel Oil L 6.7 $0.400 $2.67 $2.67 Electricity -Total kWh 37 $0.0438 $1.62 $1.62 Filter bags pcs 0.001 $36.000 $0.03 $0.03 Refractories kg 0.02 $2.670 $0.04 $0.04 Spares $ $0.78 $0.78 Grate bars Pcs 0.0004 $30.000 $0.01 $0.01 Other consumables $ $1.13 $1.13 Labour $1.89 $1.60 Total Cost $9.28 $8.99 Note: 1 liter of Fuel Oil = 45 Mj

14.9.1 Labour

Manpower for the pellet plant is summarized in Table 14.8 and details are provided in Appendix E. A Shipping Coordinator is included in the manpower but the reclaimer operators or personnel for the port operation, shiploading or maintenance of the reclaimer, shipping conveyors and ship loader are covered in Section 14.11.

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Table 14.8 — Pellet Plant Manpower Summary

Description 10 Mtpy 15 Mtpy General Administration Services 29 33 Pellet Plant Operation 88 115 Maintenance 81 104 Total 198 252

The yearly cost of labour is estimated at $18.89 million for the 10 Mtpy option and $24.01 million for the 15 Mtpy option.

14.9.2 Energy

Energy costs include fuel oil for the induration furnace and electrical power for the pellet plant equipment. Consumption and unit rates are provided in Table 14.7.

14.9.3 Consumables

Consumables include bentonite, filter bags, refractories, grate bars and others as listed in Table 14.7.

14.9.4 Maintenance

The maintenance and repair cost were estimated from Met-Chem's database or factored from similar projects. The maintenance is covered in spares.

14.10 Port and Shiploading

The port and shiploading costs include labour, electrical power, general maintenance and miscellaneous items. They are summarized in Table 14.9.

Table 14.9 — Port and Shiploading Costs 10 Mtpy 15 Mtpy Description ($000,000) ($000,000) Labour 7.95 9.29 Electrical Power 0.85 1.20 General Maintenance 5.19 5.19 Miscellaneous Items 1.35 1.35 Total 15.34 17.03

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14.11 Sept-Îles Administration

There will be a Head Office located in a dedicated building located in Sept-Îles within a short distance from the pellet plant. This is where the corporate and senior management of the company will be located. All the general administrative and support functions to the operations will be located in that office.

This should include general management, financial and accounting, purchasing, legal, public relations, sales etc.

Costs other than salaries will include insurances for all company installations, general expenditures such as local taxes, association fees etc.

Royalties or any other form of payments that may arise from potential agreements with First Nations are not included in this cost estimate but should be accounted for in future studies.

The Sept-Îles estimated administration costs are provided in Table 14.10.

Table 14.10 — Sept-Îles Administration Costs

10 Mtpy 15 Mtpy Description ($000,000) ($000,000) Salaries 3.70 3.90 Insurance 1.50 2.00 Others 1.00 1.50 Total 6.20 7.40

14.12 Site Restoration

The Lac Otelnuk site rehabilitation will fall under the jurisdiction of the Province of Québec relevant regulations. The published "Guidelines for preparing a mining site rehabilitation plan and general mining site rehabilitation requirements" provide the required information under which Met-Chem prepared a preliminary cost estimate for this rehabilitation and closure plan.

This preliminary cost estimate amounts to $17.2 million and is based on the re-sloping and re-vegetation of the tailings pond area and the re-vegetation of the top and berms of waste rock stockpiles and the topsoil/overburden area. Those elements normally represent the largest proportion of the rehabilitation costs.

According to the Guidelines quoted above, 70% of the estimated cost of rehabilitation must be set aside during the life of the mine. In the present case, for a 20 year project, an amount of $12 million will have to be disbursed between years 9 to 19 inclusive according to set parameters as specified in the Guidelines. A provision for those

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disbursements should be included in the financial analysis of the project to be done at a later stage.

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15.0 DISCUSSION

The project that is the subject of the present study involves an iron ore integrated project comprising a mine and concentrator at Lac Otelnuk in northern Québec connected to a pellet located in Sept-Îles some 700 km to the south.

With the exception of the costs related to mining, the study provides technical parameters and an economic assessment of the related capital and operating costs of implementing and operating this project.

The capital costs involved are very significant. For the option of producing 10 Mtpy of concentrate and pellets, the total cost is in the order of $3.9 billion if concentrate transportation is by pipeline and $3.0 billion if the railway option is selected for concentrate transport. For the option of producing 15 Mtpy of concentrate and pellets, the estimated cost are around $4.6 and $3.7 billion respectively for options including pipeline or railway concentrate transport.

A preliminary project implementation schedule indicates that approximately 9 years will be required to bring the project to production from initiation of the scoping study assuming all activities are carried without significant unforeseen delays.

Related total unit operating costs for pellets, excluding mining costs, range between $24- 27/tonne if concentrate is transported by pipeline and $32-34/tonne if railway is the selected mode of transport for concentrate.

The following paragraphs highlight some of the characteristics of the project as well as some concerns, risks and recommendations.

15.1 Mineral Resources and Mining

As of May 2006, the resources base of the project rests on "historical" resources derived from a limited amount of diamond drilling. In view of the considerable costs involved in developing the project, it is imperative that additional exploration drilling be carried out to delineate sufficient NI 43-101 compliant inferred mineral resources to support the completion of a scoping study level economic assessment of the project.

15.2 Ore Beneficiation

Current average grade (25% Fe) and weight recovery (35%) used in the present study were derived from "historical" testwork and will need to be supported by confirmation testwork. In addition, dedicated testwork should eventually be carried out to confirm the selection of HPGR grinding over conventional SAG mill grinding.

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15.3 Pipeline Concentrate Transport

This represents a significant proportion of the project i.e. approximately $1.1 billion or 35 to 40% of direct costs. At 700 km, this would be the longest iron ore pipeline in the world with a significant portion exposed to high temperature variations and even to permafrost. The present evaluation of the construction cost was based on very limited information that will need to be firmed up by site geotechnical investigations and rheological studies. The low estimated operating cost might favor this option over railway concentrate transport. Trade off studies comparing pipeline to railway should be completed for incorporation of the preferred option in the economic assessment contained in the scoping study.

15.4 Railway Concentrate Transport

This option involves the construction by Adriana of approximately 190 km of railway line between Lac Otelnuk and Schefferville at a cost of approximately $433 to $497 millions (10 Mtpy and 15 Mtpy options) including concentrate handling facilities. The Schefferville — Ross Bay Junction segment needs major repairs and upgrade to be rehabilitated for concentrate transport. This cost was not considered in the present study.

From preliminary contact with an IOC's representative, a significant transportation unit cost is anticipated as the route selected would make use of existing railway segments between Schefferville and Ross Bay Junction (owned by Tshiuetin Railway) and thereafter to Sept-Îles on the QNS&L line (owned by IOC).

Although the railway option might bring advantages to the project for transportation of supplies, the expected transportation unit cost might disqualify railway as an option for concentrate transportation if further studies confirm the technical feasibility and economic viability of the pipeline option.

15.5 Pellet Plant, Port and Shiploading

There are no technical concerns at this time regarding the Sept-Îles installations. However, the required testwork on the pelletizing of the Otelnuk concentrate will need to be carried out later in the project as part of pre-feasibility/ feasibility studies.

No specific location was considered in Sept-Îles for this study. Adriana may elect to consider other locations along the north shore of the St-Laurent.

15.6 Environmental Considerations

Environmental approvals typically involve appreciable time before they are obtained. Consequently, environmental studies should be initiated as early as possible in the project schedule.

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Discussions, consultations and, if applicable, negotiations with First Nations representatives should be pursued during all phases of the project. Adriana has already had meetings with representatives of the Lac Otelnuk area First Nations.

15.7 Project Implementation Schedule

The estimated schedule indicates a duration of over 91/2 years to start of production. The construction of the access road to the Lac Otelnuk site (length 175 km, estimated duration 18 months) from Schefferville is the critical path activity upon which all site activities are dependent.

Access from the west (Caniapiscau area) was mentioned as an option in a previous study. However, cursory examination of the distances and terrain involved indicates a longer distance and construction of at least one important bridge structure as opposed to none for the road access from Schefferville. The Caniapiscau option, if proven practical and economic, might be considered in the early stages of the project to fly in required equipment, material and supplies.

A more detailed look at site access will need to be carried out to confirm the preferred access road and to identify means to reduce the construction time such as winter road to allow final road construction from both ends.

15.8 Electrical Power Supply

Considering the magnitude of the project at Lac Otelnuk, power supply options should be further explored as discussed with Hydro-Québec to confirm the option retained for the present study or identify a more attractive alternative.

15.9 Other Perspectives

In view of the very high costs involved of constructing and operating concentrate transport infrastructure to a pellet plant in Sept-Îles, Adriana may want to consider studying the opportunity of building pelletizing and shiploading facilities in Northern Québec. Advantages (lower capital and operating costs) should be weighted against disadvantages (reduced shipping season acceptable or not to customers, high capacity storage required at port, etc.).

June 2006 !IT-cHEm QPF-009-12/B P:1260041Texte\Rapports\Final ReporMdriana Final Report.doc Adriana Resources Inc. Lac Otelnuk Iron Property Preliminary Capital and Operating Costs Estimate

Lac Otelnuk Property Previous Metallurgical Testwork

Metallurgical testwork on the Lac Otelnuk deposit has been done during the 70s and early 80s. There has been laboratory testing on Davis Tube and Jeffrey Low Intensity Magnetic Separator as well as one test on Jones High Intensity Magnetic Separator. Then, a bulk sample of 21 ton was taken from the North Zone in 7 pits and sent to Lakefield Research now SGS Lakefield. Some laboratory testwork was again done by Lakefield Research and a German laboratory and finally a pilot plant was run for one week.

The first testwork dates back to 1971 when core samples from drill holes in the North Zone where sent to Lakefield Research. The drill core samples came from three iron formation namely:

• 2a) Cherty Magnetite; • 2b) Jasper Magnetite-Hematite; • 2c) Banded Cherty Magnetite.

Table A.1 gives the average results of the 3 iron formations obtained with Davis Tube:

Table A.1 — Iron Formations with Davis Tube Sol Fe (%) Mag Fe (%) Cherty Magnetite 2a 33.53 24.40 Jasper Magnetite-Hematite 2b 35.18 14.24 Banded Cherty Magnetite 2c 26.13 16.29

These numbers are weighed average of the results from the length of the drill core samples used. Grinding fineness that was used for Davis Tube was 75% -325 Mesh. Concentrates varied from 61.9 — 70.9%. In the 2a iron formation (the selected iron formation), concentrates varied between 68.9 — 69.6% Sol Fe with recoveries between 73.8 — 83.0%.

The iron bearing minerals in the different iron formations are the following:

2a: Mostly Magnetite, 3% or less for others (Ferro-dolomite); 2b: 15-22% Hematite, 1-4% Ferro-dolomite, balance is Magnetite; 2c: 13% Ferro-dolomite/Hematite, balance is Magnetite.

One test was done with High Intensity Magnetic Separator but the results were inconclusive.

June 2006 MET-CHEM QPF-009-12/B P:1260041Texte\ Rapports \Final ReporMdnana Final Report.doc Adriana Resources Inc. Lac Otelnuk Iron Property Preliminary Capital and Operating Costs Estimate

1974 Lakefield Research Testwork

In 1974, further testwork was done on drill core samples form the North Zone on samples from the selected upper iron formation (2a Cherty Magnetite). New composites of drill cores were prepared to perform grindability and Davis Tube tests. Three mains composites were prepared and used for grindability tests. Table A.2 summarizes these results:

Table A.2 - Grindability and Davis Tube Tests OT-9 OT-10 OT-11 Grinding time 20.0 30.0 40.0 20.0 30.0 40.0 20.0 30.0 40.0 % -400 Mesh 53.3 69.2 78.8 53.7 67.0 78.6 59.0 73.3 81.4 % Fe in concentrate 65.2 67.0 68.3 64.4 67.1 68.3 67.3 68.9 69.5 Work index 14.3 16.0 18.8 14.3 16.6 18.8 13.3 15.3 17.9

The specific gravity of the ore was determined on the three main composites. It varied from 3.51 to 3.58.

Davis Tube tests were done on the composite OT-11 and 8 other composites (OT-12 to OT-19). The samples were ground to 80% to 400 Mesh before testing. Table A.3 gives the results:

Table A.3 - Results of Grounded Samples

Composite Head Concentrate Tailing Number Assay % Assay % Weight Assay Nw % Recove2y Sol - Sol. Ilag. Fe hag. Fe % Sol. Fe Sol. Fe Fe Fe (Cale.) (Sat.)* OT-11 34.0 24.6 25.1 35.2 69.9 72.3 14.5 OT-12 33.9 23.9 23.7 35.0 68.5 70.8 15.2 OT-13 33.7 24.4 24.8 34.9 69.9 72.4 14.3 OT-14 32.4 24.7 25.3 35.0 70.4 76.1 11.9 OT-15 33.1 22.9 23.5 32.5 70.S 69.2 15.1 OT-16 31.5 23.1 23.5 33.0 69.9 73.3 12.6 OT-17 35.3 27.8 29.0 39.2 70.9 78.7 12.4 OT-18 34.0 21.7 22.6 30.9 70.3 63.9 17.7 OT-19 3u .0 21.1 22.2 29.9 70.5 . 70.0 .. 12.9

* Satmagan Determination

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After this first phase of testing in 1974, a second phase was undertaken. 10 new composites were made (OT-25 to OT-30 and J-1 to J-4). Again, Davis Tube tests were done at 80% passing 400 Mesh on composites OT-25 to OT-30. Table A.4 gives the results:

Table A.4 - Davis Tube Tests

Composite Head % Concentrate Tailing OT Sol Fe Mag Fe % Sol Fe % Sol Fe 25 33.6 21.3 71.5 17.5 26 33.0 23.8 71.9 13.8 27 33.7 24.0 71.4 14.6 28 32.4 23.2 70.8 13.6 29 34.6 21.8 71.6 18.4 30 34.0 22.9 71.6 16.3

Then Jeffrey separation tests were done on the 4 remaining composites (J-1 to J-4) during which lkg samples were ground for 40 minutes. The fineness of the product was not determined but based on previous grindability tests, it should be approximately 80% -400 Mesh. The product was passed over a Jeffrey Wet Magnetic Drum Separator and cleaned once. The concentrate obtained in these tests varied from 69.2 - 70.2% Sol Fe. The average weight recovery was 35.15% and the average Fe recovery was 72.2% Sol Fe.

1978 German Testwork

During summer 1975, a bulk sample of approximately 21 tonnes was taken from seven trenches of the North Zone of the Lac Otelnuk Deposit. Those trenches were in the 2a Cherty Magnetite horizon which has the highest Mag Fe content. This sample was sent to Lakefield Research where they were stored. In December 1976, two barrels of 200 kg sample (one from pit #2 and one from pit #5) were sent to Germany for testwork.

The purpose of the German testwork was to look at the pelletizing and induration properties of the material from Lac Otelnuk deposit. In that sense, they were able to produce a premium - quality pellet with good green ball properties.

In the preliminary concentration testing, they made progressive grinding and performed Davis Tube tests on the ground product. They were able to reach 68.1 and 68.4% Sol Fe with weight recoveries of 34.2 and 39.6%. The final grind was 80% -

They prepared the material for balling and induration testwork by grinding it to 80% - 63µm and concentrated the material on Wet Low Intensity Magnetic Separator in two stages. The final concentrate produced was 69.5% Sol Fe. The measured Blaine Index of the concentrate was at

June 2006 l>

2000. The cleaning was insufficient as they reached 68% Sol Fe in the preliminary concentration testing with Davis Tube at the same grind fineness. A finer grind would also have help in achieving a better concentrate.

1981 Laboratory and Pilot Plant Testwork

The testwork was done in two phases. In the first phase (progress report #2), laboratory grinding and concentration with Davis Tube were done to establish the pilot plant requirement. The seven trench samples taken in 1975 were used and treated separately during this phase. Table A.5 gives the head assays for the 7 trenches (face).

Table A.5 — Head Assays

Sample Sol. Fe % D.T. bag. Fe % 3atmagan Mag. Ft % t Pace 1 33:9 30.3 30.7 Face 2 32.9 26.1 26.4 Face 3 29.4 21.1 Face 4 21.1 30.2 23.2 23.5 Face 5 36.3 24.7 24.0 Face 6 29.2 21.4 21.9 Face 7 31.5 18.2 18.1 Overall Coxosite-Assayed 31.4 - 24.7 -Average calculated 31.1 - 24.5

Table A.6 gives the results of Davis Tube concentration test for the three grinds that were tested — on each sample. Si02 grades for concentrate of 69.0% Sol Fe was 3% or less. To reach this grade, the required grind is 80% -400 Mesh.

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Adriana Resources Inc. Lac Otelnuk Iron Property Preliminary Capital and Operating Costs Estimate

Table A.6 - Davis Tube Concentration Test

Concentrate Composite Head Tailing Grind Assays,% Ass ~ H Weight Assay, % 3iec'y % t400 ~ o. Sol. Fe Nag. Fe â Sol. » Sol. Fe Sol. Fe mesh Fe Face 1 25' BM 33.9 30.3 44.8 67.6 89.3 77.3 6.5 *30.7 35' 3it 33.9 30.0 44.0 68.2 88.5 86.8 7.0 *30.7 145' BM 33.9 30.5 143.6 70.0 90.0 91.7 6..o *30.7 Face 2 20' Bm 32.9 26.5 38.8 68.4 80.7 60.3 10.4 *26.4 30' BM 32.9 26.2 37.5 69.9 79.7 77.6 10.7 *26.4 40' 3M 32.9 25.6 36.8 , 69.7 78.0 85.7 11.5 *26.4 Face 3 20' BM 29.4 21.7 33.4 65..1 74.0 58•4 11.5 *21.1 30' BM 29.4 21.0 31.1 67.6 71.5 76.7 12.2 *.21.1 , 40' 361 29.4 20.6 29.9 69-0 70.2 85.2 12.5 *21.1 Pace 14 20' BM 30.2 23.1 33.5 69.0 76.5 55.3 10.7 *23.5 30' BM 30.2 23.5 33.5 70.1 77.8 80.7 10.1 *23.5 140' BM. 30.2 23.1 32.8 70.5 76.6 88.1 10.5 *23.5 Pace 5 20' BM 36.3 25.1 37.2 67.14 69.1 71.2 17.9 *24.0 30' BM 36.3 214.7 35.6 69.3 68.0 83.5 18.1 *24.0 40' BM 36.3 214.14 314.8 70.0 67.1 90.6 18.3 *24.0 Face 6 20' BM 29.2 21.5 30.5 70.5 73.6 64.5 11.1 *21.9 30' 3i! 29.2 21.14 30.2 70.9 73.3 79.6 11.2 '2]..94 40' Bat 29.2 21.3 30.1 70.8 73.0 88.7 11.3 *21.9 Face 7 20' AM 31.5 18.5 26.14 70.2 58.8 66.3 17.6 *18.1 30' EM 31.5 18.3 26.0 70.3 58.0 80.0 17.9 *18.1 1+0' BM 31.5 17.9 25.4 70.4 56.8 87.4 18.3 *18.1 atmagan Meg 7*

A composite sample of 50 kg was prepared to determine the operating conditions required for the - pilot plant testing. First, the feed material was ground for various times and concentrated on a Jeffrey Magnetic Drum Separator to determine the weight recovery, Sol Fe content and Sol Fe recovery. These results are summarized in Table A.7.

June 2006 ET•cHEm QPF-009-12/B P:1260041Texte\Rapports\Final ReporttAdnana Final Report.doc Adriana Resources Inc. Lac Otelnuk Iron Property -- Preliminary Capital and Operating Costs Estimate

Table A.7 - Sol Fe Content and Sol Fe Recovery Results

Test No. Time P80 (µm)* Wt Rec (%)** Sol Fe (%) Sol Fe Rec (%) 1 10 300 53 49.4 83.2 2 20 120 49 52.1 81.6 3 30 75 47 52.4 80.9 4 40 60 46 54.8 80.1 5 60 38 50 52.2 82.1 9*** 60 38 33.8 70.6 74.4

* Estimated value from size distribution ** Weight recovery of 1st stage concentration *** Recleaning of test No. 5 concentrate (total of 4 passes - test No. 5 + No. 9)

The number of cleaning stages is an important factor in the final concentrate grade. Test No. 9 (recleaning of test No. 5 concentrate) was able to produce a better concentrate than tests Nos. 6, 7 and 8 at the same grind or coarser. If the grind is too fine, it appears that the recovery drops and more Fe is lost to the tailings. Table A.8 compares the 4 tests.

Table A.8 - Tests of Fe Recovery

Test No. Time -400 Mesh (%) Wt Rec (%)* Sol Fe (%) Sol Fe Rec (%) 6 20 + 20 80.9 34.0 68.4 75.0 7 20 + 30 89.5 33.5 69.1 73.4 8 20 + 40 93.6 31.2 70.2 71.1 9* 60 80.3 33.8 70.6 74.4

* 1 pass after primary grind and 2 passes after regrind (except for test #9) ** Recleaning of test No. 5 concentrate (total of 4 passes - test No. 5 + No. 9)

The second phase of testing was the pilot plant runs on a composite sample made up of the 7 trench samples in various proportions. These results are included in progress report #1 of April 1981. Table A.9 gives the results of the primary concentration testing in the pilot plant.

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Table A.9 - Results of the Primary Concentration Testing in the Pilot Plant

Test Feed Product Power Work Rougher Magnetic Concentrate

Rage %-200 kWh/ Weight % Sag Fe % Sol Fe No. kg/h Mesh tonne Index 7: Assay Recovery Recovery PP1 454 33.7 7.42 18.3 58.5" 43.9* 98.7* 81.2* PP2 448 36.0 7.45 17.4 54.0 44.0 99.0 85.1 PP3 451+ 34.6 7.71 18.7 58.3 42.2 99.2 90.0 PP4 456 35.7 6.73 16,6 60.8 41.3 99.3 89.8 PP5 496 34.6 6.73 16.3 56.2 43.4 99.2 86.2 pF6 497 34.3 6.92 17.2 56.8 42.4 99.1 86.1 * Includes recycled products

The primary grind used in the pilot plant testwork is equivalent to the grind of test No. 1 of preliminary set up laboratory tests. The weight recovery in the pilot plant was higher as well Sol Fe for all tests. The tailings varied between 39-46% mass at this stage which is a good _ performance.

In Table A.10, results of the cleaning stage are presented. The final pilot plant concentrate reached varied between 68.5% and 69.3% with Sol Fe recoveries of 76.3 and above.

Table A.10 - Results of the Cleaning Stage

Test Feed Power Work % -400 Mesh Final Magnetic Concentrate Rate kWh/ Cyc. Mag S.A. Magnetic Fe Soluble Fe No. kg/h tonne Index 0/F Conc. cm7/8 AsselY % % Rec'y Assay % % Beck y

PP1 243 13.21. 21.9 49.8 50.8 1403 62.2 98.4 65.6 81.2 FF2 242 15.92 21.5 61.8 57.4 1517 67.4 98.2 67.9 76.9 PF3 265 24.49 21.7 79.0 78.4 2184 68.2 98.7 69.0 78.4 pp4 277 21.23 17.2 83.2 79.0 2278 68.7 98.7 69.3 78.2 PP5 279 21.33 18.2 91- 4 79.9 2045 68.2 98.7 68.5 76.3 PP6 282 19.50 16.5 81.2 77.9 2002 67.8 98.7 68.5 76.8 Tables A.9 and A.10 also indicate the power consumption for each grinding stage as well as the calculated Work Index. The average primary grinding Work Index was 17.4 kWh/t for all tests and secondary grinding Work Index was 18.4 kWh/t for the last 4 tests.

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Otelnuk Lake Iron Ore Project

Material Balance - HPGR option (10.00 Mtpa @ 90% disp)

Revision: B Date: 2006-05-31 solids Prôcess Flow ~ ~ Solids ~ ~Water ~ ~~~~ Total~ ' Solids Pulp Pulp3 No. ITEM t!h `' t/h °10 t/h sp.gr. M ill gpm Pulp sp.gr. Water, M3/h

Primary Crushers 1 Primary Crushers Capacity 5500 170 97.0: 5670 3.54 Secondary Crushers 2 New Feed to Secondary Crushers 5500 170 97.0 5670 3.54 5 Sec. Crusher Screen Oversize 550 17 97.0 567 3.54 3 Total Feed to Secondary Crusher 6050 187 97.0 6237 3.54 4 Sec. Crusher Screen Feed 6050 187 97.0 6237 3.54 5 Sec. Crusher Screen Oversize 550 17 97.0 567 3.54 6 Sec. Crusher Screen Undersize 5500 170 97.0 5670 3.54 HPGR Crushers 7 New Feed to HPGR 36241 112 97.0 3736 3.54 11 HPGR Screen Oversize 1087 95 92.0 1182 3.54 8 Total Feed to HPGR 4711 207 95.8 4918 3.54 9 HPGR Screen Feed 4711 207 95.8 4918 3.54 10 Water to Screen r ' ~000; 3000 3000 13230 1.00 3000 11 HPGR Screen Oversize 1087 95' 1182 3.54 402 1771 2.94 12 HPGR Screen Undersize 3624 3112 53.8 6736 3.54 4136 18239 1.63 Rougher Magnetic Separators 12 HPGR Screen Undersize 3624 3112 53.8 6736 3.54 4136 18239 1.63 25 Ball mill feed (Cyclone Underflow) 2841 947 75.0 3788 4.36 1599 7050 2.37 26 Dewatering Cyclone Overflow 58 1425 3.9 1483 4.36 1438 6343 1.03 13 Water to Rougher Feed Pumpbox 2489 7760 2489 10975 3.12 2489 14 Rougher Magnet Feed 6523 7973 ~~45.Q?° 14496 3.86 9661 42607 1.50 15 Drum Wash Water 252 210 252 1111 0.83 252 16 Rougher Magnet Tailings 2138 5049 29.7,, 7188 3.06 5748 25348 1.25 17 Rougher Magnet Concentrate 4385 3175 ~ ~ ~_ 58.Qn 7560 4.43 4166 18370 1.81 Rougher Stacksizer Screens 17 Rougher Magnet Concentrate 4385 3175 58.0 7560 4.43 4166 18370 1.81 18 Water to Rougher Screens Feed 1210 1210 1210 5335 1.00 1210 19 Feed to Rougher Screens 4385 4385 8770 4.43 5375 23705 1.63 20 Rougher Screens Oversize 2899 966 3866 4.36 1631 7194 2.37 21 Rougher Screens Undersize 1486 3419 30.3 4904 4.57 3744 16510 1.31 Dewatering Cyclones 20 Rougher Screens Oversize 2899 966 75.0 3866 4.36 1631 7194 2.37

26004 Material Balance_RevB.xls Page 1 of 3 15.12.2005

I f I i 1 1 1 1 1 1 1 1 1 1 1 1 I I Otelnuk Lake Iron Ore Project

Material Balance - HPGR option (10.00 Mtpa @ 90% disp)

Revision: B Date: 2006-05-31 ~ . ... . Process Fl+~~r ~ ° ; ` Soh~s ~ W~ter ~~ ~oÎiâs ~ t Tt~tai ~vJtds P ul p . '~ ~ Pulp ~ ~ ~ ~ No.' ITEM ,: t/h, t/tti. _.,` /0 } t/h ; sp.gr./li gpm Pulp sp.gr. Water, M3/h

22 Push Water (Rougher Screen O/S) 600' 600 600 2646 1.00 600 23 Water to pumpbox 806 806 806 3553 1.00 806 24 Pumped to Dewatering Cyclones 2899 2372 0' 5271 4.36 3037 13393 1.74 25 Ball mill feed (Cyclone Underflow) 2841 947 .0 3788 4.36 1599 7050 2.37 26 Dewatering Cyclone Overflow 58 1425 3.9 1483 4.36 1438 6343 1.03 Deslimer 21 Rougher Screens Undersize 1486 3419 30.3 4904 4.57 3744 16510 1.31 27 Water to Deslimer 1971 1971 1971 8692 1.00 1971 28 Deslimer Overflow (to tailings launder) 72 3976 1.8 4049 3.06 4000 17640 1.01 29 Deslimer Underflow 1413 1413 2827 4.69 1715 7563 1.65 Finisher Magnetic Separators 29 Deslimer Underflow 1413 1413 50.0 2827 4.69 1715 7563 1.65 30 Water to Finisher Magnet Feed 1211 1211 1211 5342 1.00 1211 31 Finisher Magnet Feed 1413 2625 4038 4.69 2926 12905 1.38 32 Drum Wash Water 540 210 540 2381 0.39 540 33 Stage Repulping Water 470 1700 470 2071 3.62 470 34 Finisher Magnet Tailings 145 2716 5.1 2861 3.06 2763 12186 1.04 35 Finisher Magnet Concentrate 1268 918 ~K ~~~$:iï 2187 4.95 1175 5181 1.86 Concentrate Thickener 35 Finisher Magnet Concentrate 1268 918 58.0 2187 4.95 1175 5181 1.86 36 Push Water 0~. ` 0 0 0 1.00 0 37 Concentrate Thickener Feed 1268 918 58.0 2187 4.95 1175 5181 1.86 38 Thickener Overflow 236 0.0 236 1.00 236 1039 1.00 39 Thickener Underflow (to Storage Tank) 1268 683 tV!' :0 1951 4.95 939 4142 2.08 Tailings Thickener 16 Rougher Magnet Tailings 2138 5049 29.7 7188 3.06 5748 25348 1.25 28 Deslimer Overflow (to tailings launder) 72 3976 1.8 4049 3.06 4000 17640 1.01 34 Finisher Magnet Tailings 145 2716 5.1 2861 3.06 2763 12186 1.04 40 Other Flows 1}000° 1600 1000 4410 1.60 1000 41 Total Tailings Thickener Feed 2356 12742 15.6 15097 3.06 13511 59584 1.12 42 Tailings Thickener Overflow 11171 0.0 11171 1.00 11171 49265 1.00 43 Tailings Thickener Underflow 2356 1570 41 3926 3.06 2340 10319 1.68 Tailings Pumps 43 Tailings Thickener Underflow 2356 1570 60.0 3926 3.06 2340 10319 1.68

26004 Material Balance_RevB.xls Page 2 of 3 15.12.2005

I 1 I I I I I I I I I I i I 1 1 Otelnuk Lake Iron Ore Project

Material Balance - HPGR option (10.00 Mtpa @ 90% disp)

Revision: B Date: 2006-05-31 Processs Flow Solids ' ~ Water ~ of Tot~l . Solids ~ ~ pulp ~ ~ Pulp ~ ~ ~~ . No. ~ ~ ~ ITEM ~ to ~,-.' t/h._.,? sp•gr .; M3/h gpm ' Pulp sp gr. _ Water; M3/h 44 Water to Tailings Pumpbox 0 0 0 1.00 0 45 Pumped to Tailings Pond 2356 1570 60.0 3926 3.06 2340 10319 1.68

Total Process Water Used 13548 Reclaim Water from Tailings Pond 1000 River Make Up 1141 Process Water, usgpm 59,650

Water Balance Water in 112 m3/h, with plant feed

Water out 683 m3/h, with concentrate 1570 m3/h, with tailings

Water deficit 2141

Process Water used 13,548 Thickener overflows 11,407 Water deficit 2,141

26004 Material Balance_RevB.xls Page 3 of 3 15.12.2005 ADRIANA RESOURCES INC. MANNING TABLE Rev. 3 10 M Tonnes, 2 Lines 15 M Tonnes, 3 Lines Position Day Shift Total Day Shift Total General Administration and Services Plant Manager 1 1 1 1 Operation Superintendent 1 1 1 1 Chief Process Engineer 1 I 1 1 Process Engineer 2 2 2 2 Maintenance Superintendent 1 I 1 1 Security Guard 1 2 9 1 3 13 Shipping Coordinator 1 1 1 1 Training Supervisor 1 1 1 1 First Aid Attendant 1 1 I 1 Quality Control 1 1 1 1 Secretary 3 3 3 3 Process Clerk 3 3 3 3 Accounting Clerk 2 2 2 2 Warehouse Clerk 2 2 2 2 Total Management 21 2 29 21 3 33 Pellet Plant Yard Foreman 1 1 1 1 Shift Foreman I 4 2 8 Control Room Operator 2 8 3 12 Stacker Operator 1 4 1 4 Slurry Reception and Bentonite Plant Attendant 1 4 I 4 Filter Attendant 2 8 3 12 Balling Attendant 2 8 3 12 Burner Attendant 2 8 3 12 Induration & Screening Attendant 2 8 2 8 Technician 2 8 2 8 Lab Technician 2 2 10 1 3 13 Laborer 3 3 15 3 4 19 Equipment Operators 2 2 2 2 Total Pellet Plant 8 20 88 7 27 115 Maintenance Plant Engineer 1 1 1 1 Mechanical Foreman 3 3 3 3 Electrical Foreman 1 1 2 2 Instrumentation Foreman 1 1 1 1 Shop Foreman 1 1 1 1 Mechanical Planner/Inspector 2 2 3 3 Electrical Planner/Inspector 1 1 I 1 Feed & Wet Section Maintnabce 10 1 14 14 I 18 Yard & Induration Section Maintnance 10 1 14 14 1 18 Shop Trades 8 8 9 9 Electrician 5 1 9 7 I 11 Instrument Man 4 1 8 6 1 10 Helper 6 2 14 8 3 20 Maintenance Clerk 2 2 2 2 Equipment Operators 3 2 4 4 Total Maintenance 58 6 81 76 7 104 Plant Total 87 28 198 104 37 252 APPENDIX C

Concentrator Operating Costs Consumables

set/yr/unit Units Total Cost/set Total Primary crushers 1 8 Mantles 8 463,117.65 $ 1,852,470.59 $ Concaves 4 1 4 Bucket/set # of set Bucket $/bucket Epoxy (bucket/set) 635 4 2,540 92.00 $ 233,680.00 $ Sub Total 2,086,150.59 $ Secondary crushers Mantles & Bowls 21 3 63 40,294.12 $ 2,538,529.41 $ Bucket/set # of set Bucket $/bucket Epoxy 20 63 1,260 92.00 $ 115,920.00 $ Sub Total 2,654,449.41 $ HPGR Tyres 1 3 3 1,134,375.00 $ 3,403,125.00 $ Others consummables 1 3 3 60,000.00 $ 180,000.00 $ Sub Total 3,583,125.00 $ Ball Mills Liners 1 3 3 843,137.25 $ 2,529,411.76 $ kg/kWh kW installed Tonnes/yr $/tonne Balls 0.03 36,900 8,728 1,650.00 $ 14,400,520.20 $ Sub Total 16,929,931.96 $ Screen decks Secondary crushers 3 3 9 14,588.24 $ 131,294.12 $ HPGR 4 6 24 14,329.41 $ 343,905.88 $ Stacksizers 3 420 1,260 882.35 $ 1,111,764.71 $ Sub Total 1,586,964.71 $ Magnet Drum Liners Roughers 0.4 42 16.8 3,000.00 $ 50,400.00 $ Finishers 0.25 90 22.5 3,000.00 $ 67,500.00 $ Sub Total 117,900.00 $ Reagents gît Tonnes (106) kg/yr $/kg Flocculent 22 18.6 409,200 3.65 $ 1,493,580.00 $ Laboratory supplies 1 1 100,000.00 $ 100,000.00 $ Sub Total 1,593,580.00 $ Total 28,552,101.67 $

Power

Load (kW) Hours/yr Total MWh Cost ($/kWh) Op cost ($/yr) Electricity Primary crushers 2024 5778 11694 0.064 $ 751,938.49 $ Secondary crushers 4100 5778 23689 0.064 $ 1,523,195.56 $ HPGR 12504 7884 98582 0.064 $ 6,338,792.76 $ Concentrator 41057.1 7884 323694 0.064 $ 20,813,535.54 $ Tailings 2850 7884 22469 0.064 $ 1,444,782.42 $ Heating 920 0.064 $ 59,156.00 $ Sub Total 30,931,400.77 $ Fuel Tonnes/yr $/tonne Bunker C 953 399.24 $ 380,396.61 $ Sub Total 380,396.61 $ Total 31,311,797.38 $

P:1260041Chiffriers\Estimation-des-Couts\Operating Costs126004 Operating_ Costs_Concentrator_ RevE.xls - Details 10M Maintenance supplies Equipment capital cost Factor Cost ($/yr) Concentrator 117,000,000.00 $ 3% 3,510,000.00 $ Total 3,510,000.00 $

Manpower

Average # employees Sub Total Fringe (35%) Total Staff 91,611.84 $ 38 3,481,250.00 $ 1,218,437.50 $ 4,699,687.50 $ Crusher 76, 709.56 $ 34 2,608,125.00 $ 912,843.75 $ 3,520,968.75 $ Concentrator 78,657.74 $ 84 6,607,250.00 $ 2,312,537.50 $ 8,919,787.50 $ Laboratory 62,416.67 $ 12 749,000.00 $ 262,150.00 $ 1,011,150.00 $ Total 18,151,593.75 $

Total Process Plant Operating Cost 81,525,492.80 $

P:1260041Chiffriers\Estimation-des-Couts\Operating Costs126004 Operating_ Costs_Concentrator_ RevE.xls - Details 10M Consumables

set/yr/unit Units Total Cost/set Total Primary crushers 8 1 8 Mantles 463,117.65 $ 1,852,470.59 $ Concaves 4 1 4 Bucket/set # of set Bucket $/bucket Epoxy (bucket/set) 635 4 2,540 92.00 $ 233,680.00 $ Sub Total 2,086,150.59 $ SAG Liners 2 3 6 750,000.00 $ 4,500,000.00 $ kg/kWh kW installed Tonnes/yr $/tonne Balls 0.03 60,000 14,191 1,000.00 $ 14,191,200.00 $ Sub Total 18,691,200.00 $ Ball Mills Liners 1 3 3 843,137.25 $ 2,529,411.76 $ kg/kWh kW installed Tonnes/yr $/tonne Balls 0.03 36,900 8,728 1,650.00 $ 14,400,520.20 $ Sub Total 16,929,931.96 $ Screen decks SAG 4 3 12 14,329.41 $ 171,952.94 $ Stacksizers 3 420 1,260 882.35 $ 1,111,764.71 $ Sub Total 1,283,717.65 $ Magnet Drum Liners Roughers 0.4 42 16.8 3,000.00 $ 50,400.00 $ Finishers 0.25 90 22.5 3,000.00 $ 67,500.00 $ Sub Total 117,900.00 $ Reagents g/t Tonnes (106) kg/yr $/kg Flocculant 22 18.6 409,200 3.65 $ 1,493,580.00 $ Laboratory supplies 1 1 100,000.00 $ 100,000.00 $ Sub Total 1,593,580.00 $ Total 40,702,480.20 $

Power

Load (kW) Hours/yr Total MWh Cost ($/kWh) Op cost ($/yr) Electricity Primary crushers 2024 5778 11694 0.071 $ 827,950.93 $ SAG 58900 7884 464368 0.071 $ 32,877,226.08 $ Concentrator 41057.1 7884 323694 0.071 $ 22,917,547.69 $ Tailings 2850 7884 22469 0.071 $ 1,590,833.52 $ Heating 920 0.071 $ 65,136.00 $ Sub Total 58,278,694.22 $ Fuel Tonnes/yr $/tonne Bunker C 953 399.24 $ 380,396.61 $ Sub Total 380,396.61 $ Total 58,659,090.83 $

P:1260041Chiffriers\Estimation-des-Couts\Operating Costs126004 Operating_ Costs_Concentrator_ RevE.xls-Details 10M SAG Maintenance supplies Equipment capital cost Factor Cost ($/yr) Concentrator 138,000,000.00 $ 3% 4,140,000.00 $ Total 4,140,000.00 $

Manpower

Average # employees Sub Total Fringe (35%) Total Staff 91,611.84 $ 38 3,481,250.00 $ 1,218,437.50 $ 4,699,687.50 $ Crusher 73,562.50 $ 17 1,250,562.50 $ 437,696.88 $ 1,688,259.38 $ Concentrator 78,856.77 $ 96 7,570,250.00 $ 2,649,587.50 $ 10,219,837.50 $ Laboratory 62,416.67 $ 12 749,000.00 $ 262,150.00 $ 1,011,150.00 $ Total 17,618,934.38 $

Total Process Plant Operating Cost 121,120,505.40 $

P:\26004\Chiffriers\Estimation-des-Couts\Operating Costs126004 Operating_ Costs_Concentrator_ RevE.xls-Details 10M SAG Consumables

set/yr/unit Units Total Cost/set Total Primary crushers 2 12 Mantles 6 463,117.65 $ 2,778,705.88 $ Concaves 3 2 6 Bucket/set # of set Bucket $/bucket Epoxy (bucket/set) 635 6 3,810 92.00 $ 350,520.00 $ Sub Total 3,129,225.88 $ Secondary crushers Mantles & Bowls 20 5 100 40,616.47 $ 4,061,647.06 $ Bucket/set # of set Bucket $/bucket Epoxy 20 100 2,000 92.00 $ 184,000.00 $ Sub Total 4,245,647.06 $ HPGR Tyres 0.9 5 4.5 1,134,375.00 $ 5,104,687.50 $ Others consummables 0.9 5 4.5 60,000.00 $ 270,000.00 $ Sub Total 5,374,687.50 $ Ball Mills Liners 0.9 5 4.5 562,091.50 $ 2,529,411.76 $ kg/kWh kW installed Tonnes/yr $/tonne Balls 0.03 55,350 13,091 1,650.00 $ 21,600,780.30 $ Sub Total 24,130,192.06 $ Screen decks Secondary crushers 3 5 15 14,588.24 $ 218,823.53 $ HPGR 3.6 10 36 14,329.41 $ 515,858.82 $ Stacksizers 2.7 700 1,890 882.35 $ 1,667,647.06 $ Sub Total 2,402,329.41 $ Magnet Drum Liners Roughers 0.36 70 25.2 3,000.00 $ 75,600.00 $ Finishers 0.225 150 33.75 3,000.00 $ 101,250.00 $ Sub Total 176,850.00 $ Reagents g/t Tonnes (106) kg/yr $/kg Flocculent 22 27.9 613,800 3.65 $ 2,240,370.00 $ Laboratory supplies 1 1 150,000.00 $ 150,000.00 $ Sub Total 2,390,370.00 $ Total 41,849,301.92 $

Power

Load (kW) Hours/yr Total MWh Cost ($/kWh) Op cost ($/yr) Electricity Primary crushers 4044.8 4767 19280 0.071 $ 1,365,039.10 $ Secondary crushers 6932 4767 33043 0.071 $ 2,339,411.36 $ HPGR 20720 7096 147020 0.071 $ 10,409,006.62 $ Concentrator 68377 7096 485174 0.071 $ 34,350,324.69 $ Tailings 3705 7096 26289 0.071 $ 1,861,263.01 $ Heating 920 0.071 $ 65,136.00 $ Sub Total 50,390,180.79 $ Fuel Tonnes/yr $/tonne Bunker C 1,191 399.24 $ 475,495.76 $ Sub Total 475,495.76 $ Total 50,865,676.54 $

P:1260041ChiffrierslEstimation-des-Couts\Operating Costs126004 Operating_ Costs_Concentrator_ RevE.xls-Details 15M Maintenance supplies Equipment capital cost Factor Cost ($/yr) Concentrator 191,500,000.00 $ 3% 5,745,000.00 $ Total 5,745,000.00 $

Manpower

Average # employees Sub Total Fringe (35%) Total Staff 91,611.84 $ 38 3,481,250.00 $ 1,218,437.50 $ 4,699,687.50 $ Crusher 75,897.82 $ 63 4,781,562.50 $ 1,673,546.88 $ 6,455,109.38 $ Concentrator 78,605.53 $ 122 9,589,875.00 $ 3,356,456.25 $ 12,946,331.25 $ Laboratory 63,531.25 $ 16 1,016,500.00 $ 355,775.00 $ 1,372,275.00 $ Total 25,473,403.13 $

Total Process Plant Operating Cost 123,933,381.59 $

P:1260041Chiffriers\Estimation-des-Couts\Operating Costs126004 Operating_ Costs_Concentrator_ RevE.xls-Details 15M APPENDIX D

Pipeline Operating Costs Lac Otelnuk Iron ore Project Case 1 10 Mtpy"Pipeline Lac Otelnuk to Sept-lies Quebec,,

Operating Cost Estimate Personnel Costs LABOUR People No. of Total Unit Cost Extension Total Per Shift Shifts Shifts $/year Pipeline Supervisor 1.0 1 1.0 $ 120,000 $ 120,000 Engineering Support 1.0 - 1 1.0 ' 3 100,000 `.s 100,000 Operators - 2.0 6 12.0 $ 100,000 $ 1,200,000 Helpers 1.0 6 6.0 5 75,000 "$ 450,000 Maintenance - Mechanical 4.0' -' 1 4.0 $ 100,000 - $ 400,000 Maintenance - Hel 4.0 4.0 S 75,000 $ 300,000 Maintenance - Electrical 2.0 " 1 2.0 â 100,000 $ : 200,000 Maintenance - ROW & Roads 2.0'. 1 2.0 , $ 100,000 , $ 200,000, Administration Support 1.0 1 1.0 . - $..,-,, ,50,000';$ , -. • 50,000 SubTotal Labour;.S . 3,020,000

Total Op. Operating Cost per Extension Total ELECTRIC POWER kW kWh / year kVVh Pump Station 1 Slurry Mainline Pumps (4) L,1200kW 4,800 42.048.800,', 2,703.686' Charge Pumps (2) 150kW 300 2;823.0* 168,980 Agitator Pumps (3) 150kW 450 3;942,000.' 253,471. Mist Pumps (seal water pumps. sump'pumps 75E 857,000; 42,245' SubTotal Station 1 $ 3,168,383 Pump Station 2,3,4 Slurry; MantinePumps° (4)- 1200kW 4,800 = . 42,048,000;;1 Misc.Pumps (seal water pumps, sump:pumps etc.) 75 .... 657,000:; SubTotal Station 2,3,4 $ Terminal Agitator,Pumps (2).150kW 300, 2,628,1100.^ 3 0-ita'43 115,106 Misc,Ptimps;(seatwater pumps sump pumps etc.) 28,777 SubTotal Terminal $ 143,883 SubTotal Electric Power-$.

Annual Cost Extension Total WATER CONSUMPTION Volume m3 per m3 Water Supply 9,200,000 Water Treatment at rminal` 395,000 SubTotal Water ^°$;Ter ,47.39C000;95,000'

DIESEL L / kWh kWh / year $/L Extension Total Pump Station 2 0.25 42,705,000' 9,608,625 Pump Station 3 0.25 42,705,000: 9,608,625 Pump Station 4 0.25 42,705 000 9,608,625.'. SubTotal Diesel~Si~ tid26;875'''

OTHERS Extension Total Supplies/Misc. Maintenance Material Mainline Pumps Maintenance Material 8,000,000 Contract Services 250,000 Emergency Plans 250,000 Others (travel, training, security) 100,000 Vehicles 175,000 Overhead and Administration 100,000 Subtotal Other r 00

SubTotal Operating Cost' Contingency (15%) Total Operating Cost Cost per tonne (Design) $

Rev 0 - Issued for Information, May 19, 2006 Rev 1 - Updated Power and Diesel Costs, June 6, 2006

Rev:1 Operating Cost Estimate 6/6/2006 Lac Otelnuk Iron ore Project Case 2 -15 Mtpy Pipeline Lac Otelnuk to Sept-lies Quebec

Operating Cost Estimate Personnel Costs LABOUR People No. of Total Unit Cost Extension Total Per Shift Shifts Shifts $/year Pipeline Supervisor 1.0 1 1.0 $ 120,000 $ 120,000 Engineering Support 1.0 1 1.0 $ 100,000 $ 100,000 Operators 2.0 6 12.0 $ 100,000 $ 1,200,000 Helpers 1.0 6 6.0 $ 75,000 $ 450,000 Maintenance - Mechanical 4.0 1 4.0 $ 100,000 $ 400,000 Maintenance - Helpers 4.0 1 4.0 $ 75,000 $ 300,000 Maintenance - Electrical 2.0 1 2.0 $ 100,000 $ 200,000 Maintenance - ROW & Roads 2.0 1 2.0 $ 100,000 $ 200,000 Administration Support 1.0 1 1.0 $ 50,000 $ 50,000 SubTotal Labour $ 3,020,000

Total Op. Operating Cost per Extension Total ELECTRIC POWER kW kWh / year kWh Pump Station 1 Slurry Mainline Pumps (6) - 1200kW 7,200 63,072,000 $ 0.0708 $ 4,465,498 Charge Pumps (2) 150kW 300 2,628,000 $ 0.0708 $ 186,062 Agitator Pumps (4) 150kW 450 3,942,000 $ 0.0708 $ 279,094 Misc Pumps (seal water pumps, sump pumps etc.) 75 657,000 $ 0.0708 $ 46,516 SubTotal Station 1 $ 4,977,169 Pump Station 2,3, Slurry Mainline Pumps (6) - 1200kW 7,200 63,072,000 $ - $ Misc Pumps (seal water pumps, sump pumps etc.) 75 657,000 $ - $ - SubTotal Station 2,3, $ - Terminal Agitator Pumps (2) 150kW 300 2,628,000 $ 0.0438 $ 115,106 Misc Pumps (seal water pumps, sump pumps etc.) 75 657,000 $ 0.0438 - $ 28,777 SubTotal Terminal $ 143,883 SubTotal Electric Power $ 5,121,052°

Annual Cost Extension Total WATER CONSUMPTION Volume m' perm' Water Supply 9,200,000 $ - $ - Water Treatment at terminal 7,900,000 $ 0.05 $ 395,000 SubTotal Water '$ -,- = 395,000

DIESEL L / kWh kWh / year $ 1 L Extension Total Pump Station 2 0.25 63,729,000 $ 0.90 $ 14,339,025 Pump Station 3 0.25 63,729,000 $ 0.90 $ 14,339,025 SubTotal Diesel=';S- 28,678,050';

OTHERS Extension Total Supplies/Misc. Maintenance Material $ 350,000 Mainline Pumps Maintenance Material $ 9,000,000 Contract Services $ 250,000 Emergency Plans $ 250,000 Others (travel, training, security) $ 100,000 Vehicles $ 175,000 Overhead and Administration $ 100,000 Subtotal Other ;'$ 10,225,000'

SubTotal Operating Cost S 47,439,102 Contingency (15%) S 7,115,865' Total Operating Cost 5 . " 54,554,968 Cost per tonne (Design) $ 3.64

Rev 0 - Issued for Information, May 19, 2006 Rev 1 - Updated Power and Diesel Costs, June 6, 2006

Rev:1 Operating Cost Estimate 6/6/2006