Cuiu Cuiu - Advanced Gold Projects - Gold Deposits in Brazil

The Cuiú Cuiú district is located 180 kilometers southwest of the small city of Itaituba, the regional hub for the Tapajós Mineral Province (TMP) in northern Brazil. Itaituba is located approximately midway between Belém and Manaus; both are cities of greater than two million people located on the Amazon River. Access to the property is by small plane from Itaituba, or by boat along the Tapajós and Crepori Rivers.

Cuiú Cuiú is arguably the most famous garimpo in the Tapajós, with estimated historic gold production in the order of 1.5M to 2M oz; it is considered a gold district in its' own right. Magellan property holdings cover the entire district and consist of two exploration licenses, four license applications and 76 PLGs (artisinal mining claims) totaling over 47,000 hectares (> 470km²).

Cuiú Cuiú's heyday as an alluvial gold producer was from 1972 to 1992, when it was part of the largest gold rush in history. Over 1,000,000 people rushed to northern Brazil to seek their fortunes, and approximately 300,000 of these miners or "garimpeiros", ended up working the rich alluvial deposits draining into the Tapajós River. At Cuiú, 5,000 to 10,000 people lived and worked in the area.

This frenzy of activity attracted the attention of both major and junior mining companies, and in the mid to late 90's, several major mining companies as well as a handful of juniors arrived on the scene. During the period from 1996 to 1999, TVX, Phelps Dodge, RTZ and Altoro Resources all carried out work at Cuiú Cuiú. This work included gridding, soil/rock-chip sampling and a minor amount of shallow drilling. However due to the inability of any of these companies to make satisfactory agreements with the majority of the local miners, and also due to the fall of the gold price in 1997-98, interest in the area waned.

In 2004, Magellan Minerals acquired the DNPM mineral exploration rights over the area, and in 2005 Magellan management reached an historic agreement with the owners of the traditional surface rights whom have historically worked and lived at Cuiú.

Of the approximately 1.5 to 2 million ounces of gold exploited at Cuiú, greater than 95% was won from alluvial and near-surface saprolitic and lateritic material, over an area covering 11 kms x 7 kms in size (see figure below). The mineralized structure stretches for more than seventeen kilometers from southeast to northwest across Magellan's license area. Exploration work carried out by Magellan has identified five major gold soil anomalies (>1km²) as well as several minor anomalies along this zone. This mineralized structure is coincident with the large-scale regional lineament that controls the Sao Jorge, Palito, Tocantinzinho and Bom Jardim garimpos*.

The host rocks are Proterozoic granites (approx. 1.8Ga) containing andesite, aplite and pegmatite dykes and are part of the north-west trending Tapajós-Parima orogenic belt, one of six recognized terrains within the Amazon Craton. This belt of granitic and associated volcanic rocks begins in the Alta Floresta district of northern Mato Grosso state, passes through the Tapajós region of western Pará, continues north into Rondônia, and ends in southern Venezuela-Guyana, where several large gold mines are located (the former Omai mine in Guyana, being the most well known). Besides the TMP, the Tapajós-Parima belt includes three other important gold provinces: the Alta Floresta gold province some 450 kms southwest of the TMP, and the Uaimiri and Parima auriferous "domains", located 600 kms and 1200 kms northeast respectively, from the TMP. All four areas are underlain by mineralized Proterozoic intrusive and volcanic rocks, and saw sustained garimpiero activity during the past four decades.

The Tapajós granites vary in age from approximately 1.8 to 2.2Ga and are thought to represent a sequence of pre-orogenic to post-orogenic intrusive phases associated with a subducting plate margin along the western edge of the ancient Amazon Craton (Santos et al), although recent work by Juliani et al, sheds some doubt on this interpretation. Within the Tapajós Mineral Province, at least three major intrusive phases, all of which host primary gold deposits, can be differentiated: 1) earliest Cuiú Cuiú and Creporizão granites/gneisses, which are usually foliated to gneissic in character; 2) later Parauarí porphyritic monzonites and granodiorites which form great batholiths and host the largest proportion of gold deposits within the TMP, including the Tocantinzinho, Sao Jorge and Palito deposits; and 3) the latest, somewhat alkaline, Maloquinha granite which forms stocks, secondary batholiths, and is thought to be co-magmatic to the Iriri volcanics.

Tropical latosoils are developed over most areas at Cuiú, with thicker development on plateaus. The latosoil is 2 to 5 meters thick, brick red to ochre in color, and usually displays a well developed "stone line" or ferricrete horizon, several meters below surface, just above the transition to saprolite. Saprolite with varying degrees of relict texture, occurs below the laterite and is anywhere from 10m to 70m deep, but is usually around 20m to 30m thick. The transition from saprolite to relatively fresh rock (usually granite) is sharp, occurring over 1.5m or less.

Outcrop is uncommon. Lithology and mineralization are best observed in the garimpo pits and some creek drainages. Unfortunately most of the pits are now small lakes, so the amount of surface mineralization and geology to be observed is minimal.

The bulk of the gold mineralization identified to date within the Cuiú license is hosted by coarse grained, porphyritic granites that are believed to be of the Parauarí suite, although mineralization does occur within andesite, aplite and pegmatite dykes. The andesite dykes in particular, appear to be ubiquitous in mineralized zones, with higher grade mineralization often localized along the margins of the dykes, usually not within the dykes themselves. It appears that the contacts between andesite dykes (which have a strong rheological contrast to the granite), and the host granite are acting as permissive trap sites for the mineralizing fluids.

Mineralization is of two types: Low grade, more or less "disseminated style", consisting of swarms of narrow (1-3mm wide) quartz-sulfide-minor calcite veinlets. The veinlets are often sheeted, with primary orientations both NW-SE and NE-SW indicating a prolonged structural history and varying stress regimes. This style of mineralization is very similar to that which occurs at the Tocantinzinho project, 30kms southeast of Cuiú Cuiú, where Brazauro Resources has proven up a 43-101 compliant 2.3M oz. This is the style of mineralization encountered at the "Central" garimpo where hole CC03-06 returned 134m @ 1.15 g/t and hole CC02-06 returned 157m @ 0.91g/t Au.

In general, this style of mineralization can be characterized as "low sulfide", typically containing 1% to 2% pyrite, both as fine disseminations (often in association with chlorite), and hosted in narrow quartz-chlorite ± calcite veinlets. Base metal sulfides, mostly sphalerite, with lesser galena, and rare chalcopyrite occur as solitary aggregates, grains, and within gray translucent quartz veinlets. However, overall base metal concentrations are significantly less than 1%. At Tocantinzinho the occurrence of base metal mineralization is associated with high grade gold mineralization of up to 50g/t Au.

The other type of mineralization is native, occasionally coarse-grained gold, sometimes visible, hosted in discrete vein sets. The vein sets comprise multiple (2 to 10), sheeted, quartz-sulfide veins 1cm to 20+cm wide, that commonly carry grades in the range of 10 to 100g/t Au. This type of mineralization is more common than the low grade disseminated veinlet style described above, and is found in many garimpos throughout the TMP. While these high grade veins are harder to prove up in terms of overall tonnage, they are very attractive targets due to the high grade and smaller capital requirements for production. The Jerimum de Cima, Guarim, and Moreira Gomes prospects all host high grade vein style mineralization, with the latter currently producing half a kilo to one and a half kilos of gold per week, from a small five man artisinal operation.

Pincock, Allen and Holt Brazil, independent geological consultants, prepared estimates for both the Central and Moreira Gomes zones at Cuiu Cuiu. The total resource estimate for both zones is 1.18 Million ounces of Inferred material averaging 1.2g/t gold, and 0.11 Million ounces of Indicated material averaging 1.0 g/t gold. Of the total resource, approximately 51% of the gold is contained within the Moreira Gomes deposit and 49% of the total gold is contained within the Central deposit. Both deposits remain open along strike and at depth.

A summary of the total indicated and inferred ounces contained within both zones is presented below.

* Mineral resources are not mineral reserves and do not have demonstrated economic viability. Please note that all figures have been rounded to reflect their appropriate level of accuracy.

** These resources are constrained by mineable shapes and cut-off grades to meet the requirement that resources must have reasonable prospects for economic extraction. The mineable shapes are either Lerch-Grossman pits or conceptual underground stopes. Resources falling within the pits are reported at cut-off grades of 0.3gpt Au for fresh rock or 0.4 gpt Au for saprolite. Stope shapes only include blocks above a cut-off grade of 1.3gpt Au. The cut-off grades consider a gold price of $1,250 per ounce and metallurgical recoveries of 91% for fresh rock and 66% for saprolite.

A summary breakdown of the resources by zone, resource category, nature of the material and likely mining method is as follows.

* Please note that all figures have been rounded to reflect their appropriate level of accuracy.

The inferred and indicated resources for the Central deposit are based on 51 drill holes totaling 13,754 meters, extending over approximately 1,000 meters of strike and up to 450 meters depth. All 51 holes intersected the mineralized structure which remains open along strike and at depth.

The inferred resources for the Moreira Gomes deposit are based on 24 drill holes totaling 5,692 meters, extending over approximately 1,500 meters of strike length and to a vertical depth of up to 350 meters. As at Central, the mineralized structure remains open along strike and at depth.

The definitions below are taken from the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definitions Standards - For Mineral Resources and Mineral Reserves, prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council on November 27, 2010. The CIM Definition Standards are incorporated into NI 43-101 regulations for reporting of resources and reserves.

Mineral Resource

Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. An Inferred Mineral Resource has a lower level of confidence than that applied to an Indicated Mineral Resource. An Indicated Mineral Resource has a higher level of confidence than an Inferred Mineral Resource but has a lower level of confidence than a Measured Mineral Resource.

A Mineral Resource is a concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal, and industrial minerals in or on the Earth‟s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge.

Inferred Mineral Resource

An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.

Indicated Mineral Resource

An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.

Measured Mineral Resource

A ’Measured Mineral Resource’ is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.

Mineral Reserve

Mineral Reserves are sub-divided in order of increasing confidence into Probable Mineral Reserves and Proven Mineral Reserves. A Probable Mineral Reserve has a lower level of confidence than a Proven Mineral Reserve.

A Mineral Reserve is the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A Mineral Reserve includes diluting materials and allowances for losses that may occur when the material is mined.

Preliminary Feasibility Study (Pre-Feasibility Study)

A Preliminary Feasibility Study is a comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions on mining, processing, metallurgical, economic, marketing, legal, environmental, social and governmental considerations and the evaluation of any other relevant factors which are sufficient for a Qualified Person, acting reasonably, to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve.

Feasibility Study

A Feasibility Study is a comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of realistically assumed mining, processing, metallurgical, economic, marketing, legal, environmental, social and governmental considerations together with any other relevant operational factors and detailed financial analysis, that are necessary to demonstrate at the time of reporting that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a Pre-Feasibility Study.

A Block Model Inventory summary of both the Central and Moreira Gomes zones by resource category and cut-off grade is presented below. These data are not the subject of a pit optimization model.

The resource calculation was completed by Independent Qualified Person, Aaron McMahon P.G. of Pincock, Allen & Holt.