Update on the Gama and Yanasacha epithermal gold prospects, Shyri property, Azuay Province, southern Ecuador

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1 Research applied to mineral exploration Update on the Gama and Yanasacha epithermal gold prospects, Shyri property, Azuay Province, southern Ecuador Looking east over west-facing slope, north Boqueron, Gama; narrow E-W silicic structures visible, hosting enargite plus up to 1 g/t Au, with advanced argillic halos: are these feeders to a possible buried lithocap further east? Final report for: Cornerstone Resources Inc. Cornerstone Coastport JV February, 2007 Prepared by: Jeffrey W. Hedenquist Hedenquist Consulting, Inc. 99 Fifth Avenue, Suite 420 Ottawa, Ontario K1S 5P5 Canada Tel: 1(613) Hedenquist@aol.com

2 Contents page Summary and recommendations 3 Introduction 5 Gama 6 Update 12 Discussion 16 Yanasacha 17 Discussion 18 Summary and conclusions 19 Recommendations 20 Qualifications 21 2

3 Summary and recommendations Gama Work on the Gama prospect has been steadily advancing understanding of this large highsulfidation project in a systematic manner over the last 5 months. Initial mapping results, increased detail on the alteration distribution, and further rock and soil sample results indicate a system with at least two intrusive centers and zoned alteration and mineralization. The north and south Boqueron intrusions, consisting of microdiorite and rhyolite, are altered, with pyrophyllite at lower elevations, passing up into quartz-alunite at higher elevations to the east. There are silicic zones along structures that have a suggestion of a radial distribution around the two areas of intrusion. The most consistent mineralization, both in soils and rocks in elements as disparate as gold and molybdenum, are located near the intrusions. To the NE, at Ermita, there are mineralized silicic fragments brought to the surface by hydrothermal breccias, with >1 g/t Au grades, including the highest grades on the property, indicating that mineralization extends outside of the deeper intrusive environment. Based on analogies with high-sulfidation deposits elsewhere that share characteristics with Gama, including an intrusive center, structural control on alteration and mineralization, an apparent lithologic control to the development of a lithocap (locally mineralized in the silicic zone), a model is suggested. A silicic lithocap may have developed at a distance from the intrusive centers, as the acidic condensate over the top cooled during outflow, thus increasing reactivity; evidence for silicic development to the east is present in breccia fragments, some hosting mineralization. At this stage, the geophysical survey of IP resistivity will provide an indication of the bestdeveloped silicic zone(s) to the east in the area of less erosion and hence higher elevation. The presence of magnetite stock works should allow the ground magnetic survey to clearly identify the altered intrusions (but also fresh intrusions as well). A careful interpretation of the geophysical results, once completed, in light of the mapped geology will allow an integrated model to be developed that may then be tested by targeting drill holes in the next stage of assessment. Gama recommendations Continue with mapping in detail the best mineralized areas, focusing on geology, alteration, and structure while further sampling the silicic zones with channels that test structures, different alteration types, etc.; use mineral assemblages to map alteration. Extend channel sampling to include silicic boulders that occur above outcrop, both east and south of Boqueron. Complete the geophysical survey and interpretation, with the latter integrated with the geology of the prospect to reach the best explanation of the anomalies. Using an integrated model of the deposit, develop drill targets that take into account structure as well as lithologic controls. Initial drilling should test to at least 3600 m elevation with inclined holes. Extend mapping and sampling, rock and soil, to the south in the extension newly identified, as far as the vein zone. With time extend the geophysical survey to this area. 3

4 Yanasacha The Yanasacha area consists of flat-lying lithologies, mainly lithic tuff, that host at least two horizons of silicic-altered lithocaps (at ~3550 and 3300 m elevation), with several silicic ribs that define the feeder structures to the lithocaps; the top of the outcrops are capped by a zone of chalcedony replacement that indicates a low temperature of silicification and therefore suggests a shallow level of erosion. To date the mineralization defined has been spotty, although the lithocaps have not been extensively channelled. The best soil anomaly for gold occurs west of the summit at high elevation in an area with little outcrop. Although the system has had soil and rock sampling plus initial mapping conducted, further sampling, particularly in trenches to expose bedrock, is necessary, as is mapping of the geology and alteration. Yanasacha recommendation Map the area in detail to the southern and western boundary of the property, and undertake more extensive sampling of the silicic outcrops. 4

5 Introduction Mr. Mike Basha, VP Exploration of Cornerstone Resources, Inc., requested the author to revisit the Gama and Yanasacha prospects in the northern Shyri property, Azuay Province, southern Ecuador. The Gama prospect was examined for four days, on 5-6 and 9-10 February, and Yanasacha for two days on 7-8 February. The author was accompanied in the field during the visit by Servio Loayza and Francisco Abad, as well as by Basha for a day, and John Buckle for two days; Dale Finn and Walter Lozano of Newmont also visited the projects for three of these six days. Discussions with all these geologists and their ideas have been incorporated into this report. Compilations of figures and sections have been provided by George Smith. The area was first visited in August, 2006, with a total of three days spent at the prospects; a report was written at that time (Hedenquist, 2006a, unpublished report to Cornerstone; lodged at Subsequent to that visit, more extensive sampling of rock, largely channel cuts, have been conducted at both prospects, soil surveys have covered large areas of the projects, detailed alteration mapping is ongoing, particularly in the Ermita and Boqueron areas of Gama, and the geology of much of Gama has been initially mapped at 10:000 scale (Warren Pratt, January, 2007, unpublished report to Cornerstone), with the alteration mapped in detail by Loayza and others. In addition, a geophysical survey has been initiated at Gama, and was in progress during the site visit in February. The property encompasses part of the Ganarin volcanic belt, a NNE-trending zone of Tertiary volcanic activity and associated intrusive-related mineralization, including porphyry Cu-Au and epithermal Au-Ag±Cu deposits, the latter consisting of both high-sulfidation and vein prospects and developments (Chiaradia et al., 2004, Mineralium Deposita). Magmatism has continued from the Eocene-Oligocene, with deposition of the Saraguro Group of andesitic tuffs and volcaniclastic rocks, to the Miocene Santa Isabel, Turi, Turubamba, Quimsacocha, and Tarqui formations. Mineralization in the immediate vicinity has spanned a period of at least 22 to 5 Ma, Quimsacocha being the youngest known deposit. The property area encompasses at least two young volcanic centers, Quimsacocha and Chaucha (Fig. 1). Within and adjacent to the Ganarin trend there are numerous deposits, including porphyry and high-sulfidation deposits 5 to 15 km from Gama and Yanasacha. This includes the Chaucha porphyry, located about 5 km west of Gama (10-12 Ma), with an inferred resource of 216 Mt at 0.46% Cu and 0.03% molybdenum at a 0.20% copper cut-off. The Quimsacocha highsulfidation discovery by IAMGold (5 Ma)( has an indicated resources of 22.5 Mt at 3.8 g/t Au, 25 g/t Ag, and 0.16 wt% Cu (at 1 g/t Au cutoff; at 5 g/t Au cutoff, 5.6 Mt with 8.1 g/t Au, 48 g/t Ag, and 0.27 wt% Cu); it is located 15 km ESE of Gama and 8 km SW of Yanasacha. Other deposits and their sizes are discussed by Chiaradia et al., 2004 (summarized by Hedenquist, 2006a). 5

6 Fig. 1: Map of the northern part of the Shyri property (Cornerstone concessions outlined in black solid and dashed lines). Red contour outlines the 3600 m contour. The extents of the drilling and resource areas at the adjacent Quimsacocha high-sulfidation deposit, the latter projected to surface, are shown in yellow and red, respectively; the extent of outcropping advanced argillic and silicic alteration is shown in light orange (from public presentations lodged at Gama and Yanasacha prospects, with the extent of outcropping quartz-alunite alteration noted in orange, lie on the NE and SE margins of the two volcanic centers that host these systems, respectively (roughly outlined by 3600 m contour, in red). Blue dashed lines denote magnetic highs (published Ecuadorian air magnetic survey), possibly related to buried intrusions; one magnetic high corresponds to the Quimsacocha caldera (in green; Beate et al., 2001, Earth and Planetary Science Letters). Rhyolite flows in grey. Gama prospect: Ermita, Boqueron, and south The Gama prospect is located about 14 km WNW of the Quimsacocha deposit (Fig. 1), and lies at a similar elevation. The prospect is divided into the Ermita zone and the Boqueron zone to the south. The principal outcrops of resistant quartz-alunite along the upper 300 m+ of the slope, starting at Ermita and extending south to Boqueron, a distance in excess of 4 km, appear to be structurally influenced (Frontispiece); however, there is also a lithologic control to quartz-alunite alteration (Hedenquist, 2006 report). There are more outcrops of quartz-alunite up to 3 km further to the WSW, again on the erosional slope (Fig. 2); Pratt (2007 report) calls this the Pimo Ledge, in the vicinity of the Cascajo intrusive diorite complex, and notes a generally concordant relationship to Saraguro Group lithic tuffs, like elsewhere in the prospect area, typical of lithocap control. In the Boqueron area, intrusions consist of microdiorite/andesite as well as rhyolite porphyry that have intruded the Saraguro Group tuffs, the latter capped by flow-banded dacite. Outcrops of quartz-alunite alteration extends from ~3850 m down along a steep slope to ~3400 m elevation, although most of the outcrops occur at 3800 m down to 3500 m. Silicic alteration is rare in outcrop, usually restricted to structures, with halos of quartz-alunite; an exception is on the ridge top, where large and resistive silicic boulders remain along an 800 m N-S band on the ridge top at an elevation of nearly 3900 m, south of Ermita; it is unsure whether these are residual, or transported by glacial action. One zone of extensive pyrophyllite, ~1 km WSW of Ermita, has been mapped at ~3650 m elevation, with a gusano (wormy) texture, typical of that near the base of some lithocaps. Three km WSW of the strong pyrophyllite occurrence, quartz veins have recently been found (Figs. 2 and 3), and which have returned up to 7.1 and 9.9 g/t Au. 6

7 Fig. 2: Looking north to Boqueron cliffs (maximum elevation ~3900 m) and Ermita (arrow) from the diatreme area (subdued topography) near the southern margin of Gama; also to the northwest in a separate photograph, ~3400 m elevation, with quartz veins reported ~4 km WSW of Ermita. Ridges at Boqueron consist of quartz-alunite (pink) and pyrophyllite (blue), the latter with common gusano texture. Areas of Au and Ag as well as Mo±Cu anomalies in soil and rock channel samples are shown schematically in white, at elevations down to ~3600 m. Intrusions have been sketched with lines open downward; earliest intrusions (green) are strongly altered, intruded by a later, possibly syn-mineral stock (red) in the main Boqueron area; another possibly syn-mineral intrusion to the NW is suggested (dashed red), beneath the area of pyrophyllite with gusano texture, as this alteration is common as a halo to shallow intrusions, below the level of advanced argillic alteration. A weakly altered, late-mineral intrusion is located east of the pyrophyllite area (yellow); a similar intrusion (dashed yellow) is suggested NW of Ermita, based on a magnetic high anomaly (J. Buckle, pers. commun.). At the extreme left, to the SW, are outcrops of quartz-alunite, termed the Pimo Ledge, at ~3700 m. The quartz veins north of this area, at ~3400 m, report values of gold up to 9.9 g/t, >100 ppm Ag, and high As, Sb, Bi, Hg, and base metal contents; their relationship to the Gama system has yet to be determined. Ermita silicic bxs?? Fig. 3: Section extending ~1 km from the Ermita area WSW down along the quartz-alunite altered ridge (pink) to the vicinity of pyrophyllite and gusano texture (blue), continuing a further ~3 km to the outcrop of the recently discovered quartz veins (left). These outcrops and alteration are interpreted to suggest a buried syn-hydrothermal intrusion beneath the pyrophyllite area; the quartz-alunite that outcrops with a strong structural control likely extended over the top of the pyrophyllite area, but has been eroded. Where the quartz-alunite intersects favourable horizons, alteration may have mushroomed along permeable lithology; at some distance from the intrusive center, where the temperature of the altering solutions had decreased to <300 C, a leached quartz core may have developed, forming a silicic-cored lithocap (in red). There are mineralized silicic fragments, hosted by the Ermita hydrothermal breccias, as well as silicic boulders present along ~800 m of ridge at ~3850 m elevation, as evidence for this alteration type. Elevation on section ranges from a high of over 3800 m near Ermita to 2900 m in the valley. 7

8 Fig. 4: Slope of north Boqueron, to east, 0.3-m wide silicic structure (with pyrophyllite), argillic halo; 1.5 m channel returned 0.2 g/t Au, i.e., ~1 g/t Au if all due to silicic zone (see F rontispiece). Silicic alteration, of the type that forms extensive lithocaps that are potential hosts to highsulfidation mineralization elsewhere, is evident in three types of occurrences to date: 1) The most common are narrow zones along structures, typically <1 m wide (Fig. 4) that form east-trending structures in the west-verging slope of north Boqueron (see frontispiece). These structures vary from residual quartz only (Fig. 5a), with variable vuggy texture, depending on the texture of the original rock (lithic tuff, crystal tuff, porphyritic intrusion), typically with low gold anomaly (< ppb Au); such leached-only rock elsewhere constitutes a barren lithocap. Elsewhere there is a strong overprint of silicic alteration (silica addition after leaching), commonly developing a massive silicic texture (Fig. 5b). This type of alteration elsewhere can be associated with mineralization. 2) Fragments of silicic rock are present in the Ermita breccias (Fig. 5c), indicating that there is a source at depth, either from a silicic structure like those visible on the west-verging slope (Fig. 4), and/or from a silicic lithocap that does not outcrop. Selective sampling of these breccias indicates that they are variably mineralized (Table 1), with up 2-3 g/t Au in silicic fragments, and 5.7 g/t in oxide matrix. 3) Boulders of massive silicicaltered rhyolite, as yet unsampled, outcrop for ~800 m in a N-S trend along the highest portion of the ridge, between 3860 and 3890 m (Fig. 6). These are a remnant of a now-eroded unit, either largely in place, or transported to their present position by glacial movement (similar silicic boulders are present in the southern part of Gama, overlying outcrops of fresh diatreme material). 8

9 Table 1: Selective sampling results of Ermita hydrothermal breccias Sample # Au g/t Ag g/t Description PIMA Massive silicic fragments (Fig. 5c) Kaolinite >100 Andesite porphyry silicic fragments Kaolinite Vuggy quartz fragments with sulfide Kaolinite Vuggy quartz fragments Kaolinite >100 Vuggy, friable quartz fragments Kaolinite Massive silicic fragments, with barite Pyrophyllite Massive silicic fragments, with sulfide Pyrophyllite Advanced argillic (quartz-alunite) fragments Pyrophyllite Banded microcrystalline quartz, post-bx n (Fig. 5d) Dickite Matrix to fragments, highly oxidized Pyroph-dickite Veinlets post-bx n with sulfide Dickite Vuggy quartz with molds after pyrite Dickite Fig. 5: a) Moderately developed residual quartz texture, locally with silicic alteration overprint (S , 12 ppb Au), developed along structure, north Boqueron area, ~3800 m. b) Slightly lower elevation, strong silicic alteration of fragments in breccia along structure (S , 0.5 g/t Au). c) Ermita hydrothermal breccias; silicic fragments in strongly Fe oxide matrix with kaolinite. Selective sampling of fragments returned 0.2 g/t Au (S ). d) Ermita, post-breccia banded microcrystalline quartz, 0.3 g/t Au (S , with dickite), but banded quartz only returned 0.7 g/t Au. 9

10 Fig. 6: a) Summit of ridge, west edge of Boqueron, ~3860 m (Loc E/ N), silicic boulders, continues for ~800 m to south. b) Boulder consisting of brecciated rhyolite, massive silicic fragments, some with vuggy texture, cemented by massive silicic matrix. Although quartz-alunite is the dominant alteration type that is resistant to erosion (Fig. 7), argillic alteration is also common, particularly of stratified tuffs, and as halo to the silicic structures. Alteration consists of kaolinite and dickite, to pyrophyllite along structures (Fig. 4) and, at lower elevations, to widespread pyrophyllite and dickite (Figs. 7 and 8), as well as illite at even lower elevations to the east. The pyrophyllite zone at ~3650 m elevation in north Boqueron (Fig. 7) is associated with a strong soil anomaly in Au, Ag, Mo, etc. The Mo anomaly is easily explained by the common 200 up to 600 ppm Mo in channel samples from rock. The alteration is variably silicic, with a patchy texture of pyrophyllite replacement (Fig. 8b) that is termed elsewhere gusano (wormy). This texture and mineralogy is common near the base of silicic lithocaps, and in turn over the top of shallow porphyry systems (e.g., Yanacocha, Tucari, and Tantuatay, all in Peru and the first two producing mines, as well as El Mozo and numerous other prospects in Ecuador). As such, this area, with its pyrophyllite alteration, gusano texture, and strong Mo anomaly, is consistent with there being a shallow porphyry system in the area (Fig. 7) of north Boqueron, although not outcropping. There are no porphyry-style veinlets of quartz or sulfides at the level of the outcrop (Fig. 8b), just small veinlets of dickite (Fig. 8c), indicating that the top of the porphyry system is likely a few 100s m below the erosion level here at ~3680 m in the saddle to the ridge (Fig. 7). Despite the lack of porphyry vein textures in this area, Pratt (2007 report) has reported magnetite veinlets with biotite halos in the south Boqueron microdiorite intrusion. In addition, he has mapped structures in both areas that could be interpreted as roughly radial, originating in the north from the zone of strongest pyrophyllite with gusano texture, coincident with geochemically anomalous soil and rock samples. 10

11 Fig. 7: North Boqueron, quartz-alunite on ridge; to WSW, extensive pyrophyllite in saddle, ~3680 m. Fig. 8: a) Pyrophyllite zone, down slope below saddle (Fig. 7) to west, ~3650 m. b) Moderate silicic altered rock (weak scratch), replaced by pyrophyllite in patchy, gusano (wormy) texture. c) Same elevation, east side of saddle; silicic with disseminated pyrite and molybdenite, pyrophyllite-dickite, with dickite veinlets (pointer), after tuff horizon. 43 ppb Au, 156 ppm Mo, 59 ppm Cu. 11

12 Update Since the August visit, five months prior to this examination, an extensive amount of field work has been conducted and data collected, including: 1) collection of ~1500 soil samples over an area of ~2.5 x 2.5 km, much in very rugged terrain (~400 m relief); this is ongoing, with sampling being extended to the east and south; 2) a further ~500 rock samples have been collected, largely from saw-cut channels, to add to the previous ~290 samples; this work included selective sampling of hydrothermal breccia fragments, and is ongoing; 3) an area of ~2.5 km 2 was mapped at 1:10,000 scale by Pratt (2007 report), including geology with intrusions and structural trends plus alteration type; 4) areas totalling ~1 km 2 around the Ermita breccias, Boqueron structures with enargite mineralization, and the pyrophyllite-altered zone have been mapped in detail, particularly alteration, by Loayza, Abad, and others; and 5) a geophysical survey has been initiated, with lines oriented WNW; initial results of ground magnetics, and the first lines indicating IP resistivity anomalies, have been interpreted. Progress has been timely over 5 months, despite periods of heavy rain, the holiday break, and the challenges to acquire trained staff in the present environment. Data compilation has been very systematic, both in the field and in the office; for example, most rock samples have had their alteration analyzed by PIMA. Rock data, geochemistry and alteration, are available in tabulated form for reference in the field, and all data have been plotted on maps and the results contoured on paper and transparency overlays. Geochemistry The soil survey has defined two sizeable areas of multi-element anomalies, including coincident areas of Au (5-30 ppb, up to >100 ppb), Ag (>30 ppb), Bi, Te, Se, and Sb, both in the area of strong pyrophyllite alteration and to the south, in the vicinity of the strongly altered intrusions (Fig. 2). Arsenic has a high in soils as far east as the ridge line, as does Hg at the higher elevations, whereas Au and Ag anomalies are offset to the west at lower elevations. The soil anomalies east of the ridge line are much lower and subtle. The Mo anomalies are very high in soils, as much as >100 ppm, particularly in the area of pyrophyllite occurrence, where Mo can range as high as ppm in rock samples; by contrast, Cu tends to be only as high as Mo concentrations. Gold in the presently available 779 rock samples is locally highly anomalous, with 19 samples >1 g/t Au (up to several g/t; hydrothermal breccias are particularly anomalous), 19 samples >0.5-1 g/t, and 48 samples g/t (a total of 11% of samples >0.1 g/t Au). There are 45 samples with >10 g/t Au, and a further 60 range between 1-10 g/t. For Hg, 104 samples are >1 ppm, with 28 of these >10 ppm, consistent with a preservation of the relatively shallow portion of the hydrothermal system. For As, 185 samples are >100 ppm, with 21 >1000 ppm; 42 have >50 ppm Sb. Barium is locally high, with 95 samples >500 ppm, and a further 262 ranging from ppm. As mentioned, Mo is highly anomalous, particularly at lower elevations, with 33 samples >100 ppm; 37 samples are >250 ppm Cu. Tellurium is anomalous in 51 samples at >5 ppm, whereas 36 samples have > 10 ppm Bi; these last two elements, along with Mo, are commonly anomalous in high-sulfidation systems, indicating a strong magmatic component. Alteration The PIMA results define several separate mineral assemblages that are typical of lithocaps, and at first glance these appear to have some patterns in map and elevation distribution (Fig. 10). The 12

13 logical groups, based on chemical and temperature stability, and environment of formation (some of which may eventually be grouped further), are: 1) epidote etc., the "propylitic" 2) smectite and illite/smectite (latter could be physical mixture, i.e., overprint of one on the other, or an interlayed clay; this cannot be distinguished with PIMA, only XRD studies). 3) illite (plot 2 and 3, simple mixing of the two, or is there a distinction, particularly elevation, since illite should be >200 C, smectite <150 C, interstratified between, in terms of paleotemperature). 4) muscovite (if real), as it suggests > C; thus (if real), I would expect it to be lower elevation, and/or close to pyrophyllite. 5) pyrophyllite (with or without dickite) 6) kaolinite and/or dickite (or are both very distinct in distribution?); dickite is generally higher temp, and in places it is distinct from kaolinite, locally tied with pyrophyllite 7) pyrophyllite + alunite (the alunite appears to be an overprint on pyrophyllite, so just a mixture, but worthwhile to see if this maps out) 8) quartz-alunite (i.e., hard, but with alunite, this is the zone next to silicic, moderately scratchable); I would not rely solely on what PIMA shows, but also scratch and hand lens (there are 234 alunite, only 30 alunite-silicic, but based on what I have seen I would say that all the alunite-only, without clays, is likely various degrees of silicic with alunite. 9) alunite-dickite or kaolinite (and dickite-alunite) (plus or minus weak silicic, e.g., like the zone outside quartz-alunite at Pierina) 10) dominantly silicic, massive, hard (and the principle host to potential mineralization) It may be that some of these can be lumped, if it is seen that there are not any real differences in two groups in terms of distributions. Pairs to look at to see if they show a pattern (map and/or elevation), or just lump together, would be: 2 and 3, 3 and 4, 4 and 5, 5 and 7, 8 and 9, 8 and 10 (I think all 10 will be located in 8). Where a sample is just a narrow halo to a structure (e.g., some of the pyrophyllite at higher elevations), versus very wide or pervasive alteration (e.g., much of the quartz-alunite), this should be noted. The detail from alteration mapping will help to determine the direction to increasingly reactive (and cooling) fluids along structures; combined with the potential intersection of permeable lithologies, this may indicate potential lithocap development. Structures The mapping by Pratt (2007; Fig. 10) suggests a possible radial distribution of silicic structures around the two areas of mapped intrusions in the Boqueron area. This can be seen from the north Boqueron area looking to the east (Frontipiece). The question is whether these siliciccored structures, radiating from areas of pyrophyllite indicating proximity to heat sources, >300 C and overlain by areas of quartz-alunite (Fig. 9) may be feeder zones to lithologic permeable and hence silicic lithocaps further to the east. Some of the silicic structures contain gold enrichments (~1 g/t Au; Fig.) and minor enargite mineralization (e.g., at ~3735 m, left gulley in Frontispiece). Porphyry-type stock works and veinlets were not observed in the north Boqueron area (Fig. 7), with only pyrophyllite gusano textures present (Fig. 8). However, Pratt (2007) reports stock works, and magnetite veinlets with hydrothermal biotite halos in the south Boqueron intrusive center (Loc. WP 657, E/ ). 13

14 Fig. 9: Gama area, from Ermita breccias in NE through Boqueron to the Cascajo intrusion in the SW; microdiorite intrusions in green, rhyolite intrusion in medium red, and breccias in orange. Quartz-alunite samples (from PIMA) in red circles, pyrophyllite in dark blue; pyrophyllite tends to be at lower elevations around intrusions (except that associated with silicic structures, as alteration halos; Fig. 4), with quartzalunite (Fig. 7) at higher elevations. Rock samples with >50 ppb Au in light blue triangles, and >20 ppb Au in soils outlines by heavy red line. Area of Fig. 10 outlined by black box. Light red line highlights 3600 m contour; break in slope at ~3880 m along ridge to east. Heavy grey line on ridge top shows location of silicic boulder field (Fig. 6). Grid lines 1 km apart; contour spacing 10 m; star for reference with Fig. 10. Data compiled by George Smith. 14

15 Fig. 10: Geologic map (summarized from Pratt, 2007, by George Smith) of the Gama area, showing Ermita breccias in NE corner (plus other breccias in orange). Medium and light red areas are microdiorite and rhyolite, respectively; brown and grey are near flat-lying lithic tuff and dacite flows, respectively. Silicic structures, in dark red, define crude radial pattern around the two intrusive centers m contour in heavy dashed line, 3800 m in light red line. Grid line 500 m apart, contour spacing at 50 m. Star shows approximate center of pyrophyllite in north Boqueron (Fig. 9). 15

16 Discussion The work completed in the past several months, including mapping of geology, structure, and alteration, have started to identify two intrusion centers in the Boqueron area, north and south, each with a suggestion of a radial fracture system of silicic structures (Fig. 10). In addition, both have pyrophyllite as halos, particularly the north intrusive center (Figs. 9; location of star), and both are the centers of rock and soil anomalies of several elements, gold in particular (Fig. 9). It could be argued that the leached advanced argillic cap and silicic center of the system was located over the area of the intrusion(s), or further west, and hence is now eroded in its entirety. Arguments against this possibility include the common offset of the silicic core of lithocaps from the area over the intrusion, as they form once the acidic condensate has cooled and become more reactive; these areas are the most resistive part of the system, more than the quartz-alunite. Conceptual erosion of the Far Southeast-Lepanto system, Philippines (Fig. 11) shows what the outcrop pattern of alteration may be adjacent to that intrusive-centered system m Fig. 11: NW-SE longitudinal section through the Lepanto high-sulfidation deposit, Luzon, Philippines; schematic distribution of residual quartz (locally vuggy) and silicic alteration (red), with a halo of advanced argillic alteration (orange and yellow) that extends to overlie the Far Southeast porphyry deposit (Hedenquist et al., 1998, Economic Geology). Diorite dikes (purple outline) define core of porphyry, with late sericite (illite) overprint, grading up to pyrophyllite. Note that the overlying lithocap, formed at the same time at the potassic stage (~1.4 Ma) does not include a silicic zone directly over the porphyry; it developed ~500 m to the NW, where the acidic condensate became sufficiently reactive due to cooling to <300 C to allow leaching of Al from the rocks, leaving vuggy quartz that was subsequent mineralized with enargite and gold. Area has been schematically eroded to show what the outcrop pattern may look like in the future. Assessment of the geophysical results in the high-elevation area above 3800 m, where their is limited outcrop except for the mineralized hydrothermal breccias at Ermita will be essential to help identify potential lithocap targets of high-resistivity silicic alteration adjacent to the intrusive centers, e.g., at a distance of 500 to 1000 m east of the northern intrusive center. High resistivity anomalies, with or without chargeability, will be the principle targets along with the mineralized hydrothermal breccias for drill testing. A survey is now in progress over the area, including ground magnetic anomalies, and gradient array followed by pole-dipole for IP resistivity; initial results suggest that there are magnetic, conductivity, and resistivity contrasts. 16 0

17 Yanasacha prospect The Yanasacha prospect is located on the NE margin of the Quimsacocha volcanic center, about 8 km NE of IAMGOLD s Quimsacocha high-sulfidation discovery. The outcrops on the slopes between 3300 and 3600 m (Fig. 12) consist of advanced argillic altered lapilli tuff (lithic bearing), both quartz-alunite as well as areas of kaolinite and/or dickite. Included in this area is a granular textured alteration of dominantly silicic rock than may have originally been quartzalunite, but with supergene oxidation of the contained pyrite, the alunite was dissolved. One clearly defined horizon near ~3550 m elevation consists of silicic alteration, including minor amounts of vuggy texture, but mostly massive silicic; this represents a lithologic horizon, with ribs extending down and up the hill of massive silicic alteration (Fig. 12), presumably along structures. A quarry at lower elevation, ~3300 m, also comprises massive and vuggy silicic alteration of a fine cystal tuff breccia (Fig. 13b); a similar horizon is reported present to the south (Fig. 13a). At ~3350 m a lithology-controlled horizon of massive pyritic replacement is sandwiched between argillic alteration. Fig. 12: WSW over Yanasacha, up to ~3630 m elevation at top; chalcedony cap, rounded peak in middle of right half of horizon. Lithocap horizon lies just above canal at ~3500 m elevation; silicic ribs define ridges, likely along structures. Bottom of valley near 3300 m. Fig. 13: Yanasacha. a) Looking WSW to southern margin of property, past trees; outcrops of a silicic (?) horizon straight across the valley at ~3300 m elevation, no samples. b) To NW, principle feature on property, rising to ~3600 m; quarry in silicic horizon of possible andesite flow, also at ~3300 m elevation, with ppb Au. 17

18 Fig. 14: a) Near summit of Yanasacha, looking east, capped by chalcedony replacement. b) Closeup of chalcedony replacement near summit. Nature of replacement indicates a low temperature of silicification, possibly near the base of the paleowater table; if so, this indicates a shallow depth of erosion. Near the top of the hill (Fig. 14a) the breccias present are massively silicified and replaced by chalcedony (Fig. 14b) that was deposited at low temperature, suggesting a relatively shallow erosional level. Fig. 15: NE over the principle hill of Yanasacha, maximum elevation of summit to left is 3630 m, with minimal outcrop; the best gold-in-soil anomaly lies to the west (left) of the summit. The 3600 m peak to right capped by chalcedony (Fig. 14). A portion of the lithocap above 3500 m outcrops as a cliff on the right horizon; this silicic altered lithology has had relatively few samples collected. Scattered silicic outcrops on the south slope may define structures where they intersect lithologies; maximum ~1 g/t Au. Discussion The best soil anomaly for gold, >300 ppb, lies just west of the 3630-m summit in an area of no outcrop and boggy conditions; at present it is unsure what is providing the source for this anomaly, except that it lies at high elevation, and extends to the NW. This area requires trenches in an attempt to reveal the nature of the bedrock. Another area of strong soil anomaly, >100 ppb, lies around the NE and east side of the slope. The channel sampling results to date illustrate sharp contrasts, from <0.1 g/t to 1 g/t in the space of 1-2 m, even in silicic altered rock (e.g., S , on the south slope; Fig. 15). There are relatively few samples of silicic alteration, along lithocaps or structures, that return >0.5-1 g/t 18

19 Au, although the sampling density is not high at present over the hill. In addition, some of the >1 g/t Au results are from outcrops with strong oxide overprint (e.g., 27170), indicating that supergene processes must also be considered for some of the anomalies. Outcrops to the south of the main hill (Fig. 13a) have yet to be sampled. Overall, fully representative sampling remains to be completed at Yanasacha, particularly of the outcropping and sub-cropping silicic units. Summary and conclusions Gama Work on the Gama prospect has been steadily advancing understanding of this large highsulfidation project in a systematic manner over the last 5 months. Initial mapping results, increased detail on the alteration distribution, and further rock and soil sample results indicate a system with at least two intrusive centers and zoned alteration and mineralization. The north and south Boqueron intrusions, consisting of microdiorite and rhyolite, are altered, with pyrophyllite at lower elevations, passing up into quartz-alunite at higher elevations to the east. There are silicic zones along structures that have a suggestion of a radial distribution around the two areas of intrusion; there are magnetite veinlets with biotite halos associated with the south Boqueron microdiorite that may indicate proximity to the porphyry environment. The most consistent mineralization, both in soils and rocks in elements as disparate as gold and molybdenum, is located near the intrusions. To the NE, at Ermita, there are mineralized silicic fragments brought to the surface by hydrothermal breccias, with >1 g/t Au grades, including the highest grades on the property. Based on analogies with high-sulfidation deposits elsewhere that share characteristics with Gama, including an intrusive center, structural control on alteration and mineralization, an apparent lithologic control to the development of a lithocap (locally mineralized in the silicic zone), a model is suggested. A silicic lithocap may have developed at a distance from the intrusive centers, as the acidic condensate over the top cooled during outflow, thus increasing reactivity; evidence for silicic development to the east is present in breccia fragments, some hosting mineralization. At this stage, the geophysical survey of IP resistivity will provide an indication of the bestdeveloped silicic zone(s) to the east in the area of less erosion and hence higher elevation. The presence of magnetite stock works should allow the ground magnetic survey to clearly identify the altered intrusions (but also fresh intrusions as well). A careful interpretation of the geophysical results, once completed, in light of the mapped geology will allow an integrated model to be developed that may then be tested by targeting drill holes in the next stage of assessment. Yanasacha The Yanasacha area consists of flat-lying lithologies, mainly lithic tuff, that host at least two horizons of silicic-altered lithocaps (at ~3550 and 3300 m elevation), with several silicic ribs that define the feeder structures to the lithocaps; the top of the outcrops are capped by a zone of chalcedony replacement that indicates a low temperature of silicification and therefore suggests a shallow level of erosion. To date the mineralization defined has been spotty, although the lithocaps have not been extensively channelled. The best soil anomaly for gold occurs west of 19

20 the summit at high elevation in an area with little outcrop. Although the system has had soil and rock sampling plus initial mapping conducted, further sampling, particularly in trenches to expose bedrock, is necessary, as is mapping of the geology and alteration. Recommendations Gama Continue with mapping in detail the best mineralized areas, focusing on geology, alteration, and structure while further sampling the silicic zones with channels that test structures, different alteration types, etc. Extend channel sampling to include silicic boulders that occur above outcrop, both east and south of Boqueron. Complete the geophysical survey and interpretation, with the latter integrated with the geology of the prospect to reach the best explanation of the anomalies. Using an integrated model of the deposit, develop drill targets that take into account structure as well as lithologic controls. Initial drilling should test to at least 3600 m elevation with inclined holes. Extend mapping and sampling, rock and soil, to the south in the extension newly identified, as far as the vein zone. With time extend the geophysical survey to this area as well. Yanasacha Map the area in detail to the southern and western boundary of the property, and undertake more extensive sampling of the silicic outcrops. 20

21 Qualifications I, Jeffrey W. Hedenquist, of Ottawa, Canada, hearby certify that: I am President of Hedenquist Consulting, Inc., incorporated within the province of Ontario. I am an independent consulting geologist with an office at 74 Greenfield Avenue, Ottawa, Ontario, K1S 0X7, Canada; telephone I am a graduate of Macalester College, St. Paul, Minnesota, USA (B.A, Geology, 1975), The Johns Hopkins University, Baltimore, Maryland, USA (M.A., Geology, 1978), and the University of Auckland, Auckland, New Zealand (Ph.D, Geology, 1983). I have practiced my profession as a geologist continuously since 1975, working as a researcher for the U.S. Geological Survey, the New Zealand Department of Scientific and Industrial Research Chemistry Division, and the Geological Survey of Japan until the end of I have published widely in international refereed journals on subjects related to epithermal and porphyry ore-deposit formation and active hydrothermal systems. I consulted to the mineral industry and various governments as a New Zealand government scientist from 1985 to 1989, and I have been an independent consultant since January, I am a Fellow of the Society of Economic Geologists and have served as an executive officer, and am a member of the Society of Resource Geology of Japan and the Geochemical Society. I was Editor of the 100 th Anniversary Publications of Economic Geology, am an editorial board member of Economic Geology and Resource Geology, and have previously served as editorial board member of Geology, Geothermics, Journal of Exploration Geochemistry, Geochemical Journal and Mineralium Deposita. This report is based on information provided to me by Cornerstone Resources, internally available reports, and personal observations in the field. I have no direct or indirect interest in Cornerstone Resources or Coastport, in the properties described in this report, or in any other properties in the region. I hearby grant permission for the use of this report in its full and unedited form in a Statement of Material Facts or for similar purpose. Written permission must be obtained from me before publication or distribution of any excerpt or summary. Hedenquist Consulting, Inc. Jeffrey W. Hedenquist Date: February, 2007 Jeffrey W. Hedenquist, Ph.D. Ottawa President 21