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 June 2006 !iT.CHEm OPF-009-1218 P:1260041Texte\Rapports\Final Report\Adnana Final Report.doc 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 June 2006 MET-CHEM OPF-009-12/B P:\260041Texte\Rapports\Final Report1Adriana Final Report.doc 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 June 2006 MET-CHEM OPF-009-12/B P:1260041Texte\Rapports\Final ReportWdnana Final Report.doc Adriana Resources Inc. Lac Otelnuk Iron Property Preliminary Capital and Operating Costs Estimate Page ii 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 June 2006 MET-CHEM QPF-009-12/B P:126004\Tex[e\Rapports\Final RepornAdriana Final Report.doc Adriana Resources Inc. Lac Otelnuk Iron Property Preliminary Capital and Operating Costs Estimate Page iii 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 June 2006 ITCHEm QPF-009-12/B P:1260041Texte\RapportslFinal ReportBAdriana Final Report.doc Adriana Resources Inc. Lac Otelnuk Iron Property Preliminary Capital and Operating Costs Estimate Page i 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 June 2006 MET-CHEM QPF-009-12/B P:1260041Texte\Rapports\Final Report\Adriana Final Reportdoc Adriana Resources Inc. Lac Otelnuk Iron Property Preliminary Capital and Operating Costs Estimate Page ii 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 June 2006 ET•CHEm OPF-009-1218 P:1260041Texte\Rapports\Final ReportlAdnana Final Report.doc Adriana Resources Inc. Lac Otelnuk Iron Property Preliminary Capital and Operating Costs Estimate Page iii List of Abbreviations (Cont'd) Volt V Watts, Griffis and McQuat Limited WGM Weight Recovery % WR % June 2006 NEKHEM QPF-009.12/B P:1260041TextelRapports\Final Report.Adriana Final Report.doc Adriana Resources Inc. Lac Otelnuk Iron Property Executive Summary Preliminary Capital and Operating Costs Estimate Page i 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.

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