ANNUAL INFORMATION FORM by mikeholy

VIEWS: 15 PAGES: 23

									ENTRÉE RESOURCES INC.




             INITIAL
ANNUAL INFORMATION FORM
   for the year ended April 30, 2002




        AUGUST 16, 2002
                                                                   TABLE OF CONTENTS
                                                                                                                                                                     Page
REFERENCE INFORMATION ............................................................................................................................... 1

CORPORATE STRUCTURE ................................................................................................................................... 1

GENERAL DEVELOPMENT OF THE BUSINESS............................................................................................... 2
   SIGNIFICANT ACQUISITIONS AND DISPOSITIONS ........................................................................................................ 2
NARRATIVE DESCRIPTION OF THE BUSINESS.............................................................................................. 3
   OVERVIEW ................................................................................................................................................................. 3
   THE SHIVEE TOLGOI PROPERTY IN MONGOLIA .......................................................................................................... 3
     Property Description and Location....................................................................................................................... 3
     Accessibility, Climate, Local Resources, Infrastructure and Physiography ......................................................... 4
     History .................................................................................................................................................................. 5
     Geological Setting................................................................................................................................................. 6
     Exploration ........................................................................................................................................................... 8
     Mineralization....................................................................................................................................................... 9
     Drilling................................................................................................................................................................ 10
     Sampling and Analysis ........................................................................................................................................ 10
     Mineral Resource and Mineral Reserve Estimates ............................................................................................. 10
     Exploration and Development............................................................................................................................. 10
   COST ESTIMATE ....................................................................................................................................................... 11
     Phase I ................................................................................................................................................................ 11
     Phase II ............................................................................................................................................................... 12
   PRIVATE PLACEMENT .............................................................................................................................................. 12
RISK FACTORS....................................................................................................................................................... 12

SELECTED CONSOLIDATED FINANCIAL INFORMATION ........................................................................ 16
   DIVIDEND RECORD AND POLICY .............................................................................................................................. 17
MANAGEMENT’S DISCUSSION AND ANALYSIS ........................................................................................... 18
   GENERAL INFORMATION AND RESULTS OF OPERATIONS ......................................................................................... 18
   QUARTERLY INFORMATION ..................................................................................................................................... 18
   LIQUIDITY AND CAPITAL RESOURCES...................................................................................................................... 18
MARKET FOR SECURITIES ................................................................................................................................ 19

DIRECTORS AND OFFICERS .............................................................................................................................. 19
   SHAREHOLDINGS OF DIRECTORS AND OFFICERS...................................................................................................... 20
   COMMITTEES OF THE BOARD OF DIRECTORS ........................................................................................................... 20
   CORPORATE CEASE TRADE ORDERS OR BANKRUPTCIES ......................................................................................... 20
   PENALTIES OR SANCTIONS ....................................................................................................................................... 20
   CONFLICTS OF INTEREST .......................................................................................................................................... 20
ADDITIONAL INFORMATION ............................................................................................................................ 20




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                                         REFERENCE INFORMATION

Unless otherwise noted or the context otherwise indicates “the Company”, “we”, “us”, “our” and “our Company”
refers to Entrée Resources Inc..

Unless otherwise noted, the information contained in this Annual Information Form is given as at April 30, 2002.


                                           CORPORATE STRUCTURE

We were incorporated on July 19, 1995 under the name Timpete Mining Corporation, with an authorized capital of
20,000,000 common shares without par value, by registration of our Articles and Memorandum pursuant to the
Company Act (British Columbia). We obtained a receipt on March 10, 1997 for a Prospectus filed with the British
Columbia Securities Commission. Following the completion of the Prospectus Offering, our shares were listed for
trading on the TSX Venture Exchange (then known as the Vancouver Stock Exchange). On September 30, 1997, our
authorized capital was altered by subdividing, on a two (2) new for one (1) old basis, all of the 20,000,000 common
shares without par value. On February 5, 2001 we changed our name from “Timpete Mining Corporation” to
“Entrée Resources Inc.” and altered our authorized capital by subdividing, on a four (4) new for one (1) old basis, all
of the 40,000,000 common shares without par value into 160,000,000 common shares without par value and,
subsequent to such subdivision, we decreased our authorized capital to 100,000,000 common shares without par
value.

As of August 16, 2002, we had an issued and outstanding capital of 24,816,000 common shares.

At our Annual and Extraordinary General Meeting of Shareholders held August 16, 2002, our shareholders
authorized our board of directors to make a determination as to whether or not to proceed with a consolidation of our
share capital on the basis of one new common share without par value for two existing common shares without par
value, subject to any applicable regulatory approval. The board of directors has not yet determined if or when we
will proceed with the consolidation. If we do proceed with the consolidation, the number of common shares then
outstanding will be reduced by 50%, however, the authorized share capital (100,000,000 common shares) will
remain unchanged.

The following table and diagram show our principal operating subsidiaries, their jurisdiction of incorporation and
the percentage ownership of their voting securities:


                                                                      Place of                 Percentage
 Name                                                              Incorporation               Ownership
 Entrée LLC                                                          Mongolia                100% owned by the
                                                                                                Company.




                                                 Entrée Resources Inc.

                                                              100%


                                                      Entrée LLC




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                               GENERAL DEVELOPMENT OF THE BUSINESS

In this Annual Information Form, unless otherwise stated, “dollars” and “$” refer to Canadian dollars.

We are engaged in the acquisition and exploration of mineral resource properties. We commenced operations in
1995, the year of our incorporation, with the exploration of property (the “Santa Rosa Property”) in Santa Rosa,
Costa Rica. A 100% interest in the Santa Rosa Property was acquired from a former related party in return for which
we issued 800,000 common shares with an agreed value of $200,000. A total of 205.2 metres of drilling was
completed during 1999. On April 30, 2001, our management decided to abandon its interest in the property and all
deferred mineral property costs were written off to operations. Between then and July 25, 2002, we had no active
mineral exploration properties. The Company has now acquired an option to purchase up to a 60% undivided
interest in the Shivee Tolgoi Property in Mongolia. See “Significant Acquisitions and Dispositions” and “The
Shivee Tolgoi Property” below.

Significant Acquisitions and Dispositions

We commenced operations in 1995 with the exploration of the Santa Rosa Property. After Phase I drilling, our
expectation of expanding the high grade resource by drilling along strike was not realized. Our investment in the
Santa Rosa Property was written off in April 2001 and we no longer have any interest in that property.

On May 21, 2002, we entered into a binding letter of intent (the “Letter of Intent”) with Mongol Gazar Co., Ltd.
(“Mongol Gazar”), a Mongolian private company. The Letter of Intent was subsequently amended by an undated
letter. The Letter of Intent, as amended, provided for the acquisition by us of up to a 60 per cent interest in three
mineral concessions (collectively the “Shivee Tolgoi Property”) located in Bayan-Ovoo Sum, Umnugobi Province,
Southern Mongolia, and identified as licensed areas 3136X (Togoot), 3148X (Shivee Tolgoi) and 3150X
(Javkhlant). Mongol Gazar has been the registered and beneficial owner of the Shivee Tolgoi Property since its
initial staking and acquisition. By transfers dated June 17, 2002, Mongol Gazar transferred title to those concessions
to Bayaraam LLC (“Bayaraam”), a Mongolian affiliate of Mongol Gazar. By subsequent transfers dated July 30,
2002, title to the concessions was transferred to MGP LLC, also an affiliate of Mongol Gazar. The registered
shareholders of MGP LLC hold their shares in that company as bare trustees for Mongol Gazaar, the Company and
Entrée LLC under the terms of a Trust Deed and Acknowledgement made effective July 30, 2002. MGP LLC will
transfer and otherwise deal with its interest in the Shivee Tolgoi Property in accordance with the terms of the Option
Agreement and the Joint Venture Agreement.

Pursuant to the Letter of Intent, we entered into a formal option agreement with Mongol Gazar (the “Option
Agreement”), made effective July 25, 2002, the terms of which are set out below.

In order to earn our 60% interest in the concessions, we must reimburse Mongol Gazar for up to US$200,000 in
previous expenditures, spend US$500,000 (which includes US$10,000 paid into trust upon execution of the Letter of
Intent, pending completion of the Option Agreement) in the exploration and development of the concessions during
the first year of the option and, during the next four years, incur further expenditures on the concessions totalling
US$12 million, and issue to Mongol Gazar annually one million common shares on or before each of the second,
third, fourth and fifth anniversaries of the Option Agreement.

In consideration of these payments, share issuances and expenditures, we will receive a 15 per cent interest in the
concessions after two years, and an additional 15 per cent interest after each of the third, fourth and fifth years.

Once we have earned the interest, we will enter into a joint venture agreement (the “Joint Venture Agreement”) with
Mongol Gazar for the further development of the concessions. Mongol Gazar will receive a 2 per cent net smelter
return royalty on mineral production from the concessions. We will be entitled to purchase one-half of the net




::ODMA\PCDOCS\CMLAW\974000\8                            -2-
smelter return royalty for US$10 million. If we have earned less than a 60% undivided interest in the Shivee Tolgoi
Property, a joint venture will arise between the parties on amended terms as appropriate.

For further particulars on the concessions, see “The Shivee Tolgoi Property in Mongolia”, below.

Also effective July 25, 2002, the Company assigned its interest in the Option Agreement and its right to acquire an
interest in the Shivee Tolgoi Property to its wholly-owned Mongolian subsidiary, Entrée LLC, which will assume
the Company’s related obligations under the Option Agreement.

As the Company is a mineral exploration company with no producing properties, there are no significant trends to
report.


                              NARRATIVE DESCRIPTION OF THE BUSINESS

Overview

We abandoned our interest in the Santa Rosa Property in April 2001. Since then, we have been seeking other
mining projects, but we have had no active mineral properties until we entered into the Option Agreement which
entitles us to acquire up to a 60 per cent interest in the Shivee Tolgoi Property.

The Shivee Tolgoi Property in Mongolia

Property Description and Location

The Shivee Tolgoi Property is located in Mongolia. The Shivee Tolgoi Property is comprised of an interest in three
mineral concessions located in Bayan-Ovoo Sum, Umnugobi Province, Southern Mongolia, identified as licensed
areas 3136X (Togoot), 3148 (Shivee Tolgoi) and 3150X (Javhlant).

The following disclosure, relating to the Shivee Tolgoi Property, has been extracted from a geological report entitled
“Report on the Geology and Mineral Potential of ‘Shivee Tolgoi’ Property, Southern Gobi Gold-Copper Belt,
Mongolia” (the “Technical Report”) dated June 27, 2002. The Technical Report was prepared for us by Dr. Andrejs
Panteleyev, P. Eng., of XDM Geological Consultants, Inc. Dr. Panteleyev is a “Qualified Person” as defined in
National Instrument 43-101 and has consented to the disclosure of the information in this Annual Information Form
which is derived from the Technical Report. The Technical Report was filed on Sedar on July 23, 2002 under
Project number 467256. The filing was made prior to the preparation and filing of this Annual Information Form
and the disclosure in the Technical Report is incorporated herein by reference. Reference in the discussion below to
“Figures” are to “Figures” in the Technical Report.

The Shivee Tolgoi Property consists of three contiguous mineral exploration properties or concessions: 3136X
Togoot (104,484 ha), 3148X Shivee Tolgoi (54,760 ha) and 3150X Javhlant (20,346 ha). The concessions are shown
on Figure 2. The concessions were granted by the Mineral Resources Authority of Mongolia (MRAM) on the
following dates: 3136X Togoot – March 30, 2001, 3148X Shivee Tolgoi – April 03, 2001 and 3150X Javhlant –
April 03, 2001. The concessions have not been legally surveyed; they are granted on the basis of ‘map staking’.

The concessions are contained within the area of map K-48-B “Baruunsuu” in the southern Gobi region in the
Umnugobi (Ömnögovi) Aimag (Province). The Togoot Concession is in Bayan Ovoo Sum (Township or District)
and the Shivee Tolgoi and Javhlant Concessions are in Hanbogd-Bayan Ovoo Sums. The Shivee Tolgoi prospect lies
about 80 kilometres north of the border with China.




::ODMA\PCDOCS\CMLAW\974000\8                            -3-
We have entered into the Option Agreement with Mongol Gazar, the beneficial owner of the concessions, providing
for the acquisition, by us, of up to a 60 percent interest in the three mineral concessions. In order to earn the interest,
we must reimburse Mongol Gazar for up to US$200,000 in previous expenditures and spend US$500,000 in
exploration and development of the concessions during the first year of the agreement. During the next four years
we must incur further expenditures on the property totalling US$12,000,000, and issue Mongol Gazar annually
1,000,000 common shares of the Company, on or before the second, third, fourth and fifth anniversaries of the
Option Agreement. In consideration of these payments, share issuances and expenditures, we will receive a 15
percent interest in the concession after two years, and an additional 15 percent interest after each of the third, fourth
and fifth year.

Once we have earned our interest, we will enter into a joint venture with Mongol Gazar for the further development
of the concessions. Mongol Gazar will receive a 2 per cent net smelter return royalty on mineral production from the
concessions. We may, at any time, purchase one-half of the net-smelter return royalty for US $10,000,000.

We will conduct our Mongolian operations through our wholly-owned subsidiary, Entrée LLC, to which we have
assigned our interest in the Option Agreement and our right to acquire an interest in the Shivee Tolgoi Property.
Entrée LLC will assume our obligations under the Option Agreement. Title to the Shivee Tolgoi Property has been
transferred to MGP LLC, a Mongolian company, as contemplated by the Option Agreement. The registered
shareholders of MGP LLC, who are nominees of Mongol Gazar, will hold the shares in MGP LLC as bare trustees
for Mongol Gazar, the Company and Entrée LLC and, pursuant to the terms of the Option Agreement, MGP LLC
will transfer or otherwise deal with the Shivee Tolgoi Property in accordance with the terms and conditions of the
Option Agreement and Joint Venture Agreement.

In Mongolia, an exploration concession is granted for a period of up to three years with rights for a two-year
renewal. The concessions are kept in good standing by payment to the Mineral Resource Authority of set annual fees
escalating from US$0.05 to US$1.00 per hectare over the course of the five year tenure. A property can be reduced
in size selectively by non-payment on specified areas. After the five-year exploration license matures, a mining
license can be applied for and is granted for sixty years. To comply with regulations governing exploration
activities, companies are required to file an annual work plan and provide a summary report at the conclusion of
exploration activities that includes a discussion of environmental impacts.

The small hill that Shivee Tolgoi Property is named after is located at latitude N 43° 06’ 04.7” and longitude E 106°
46’ 42.8” in the northern part of Zone I, the easternmost zone of notable hydrothermal alteration on the property
(Figure 3 of the Technical Report). This location is approximately 540 kilometres due south of the capital city of
Ulaan Bataar and about 10.5 kilometers to the northwest of the major porphyry copper-gold deposit recently
identified at Oyu Tolgoi.

For a map of the area, see Figure 1 in the Technical Report.

Accessibility, Climate, Local Resources, Infrastructure and Physiography

The Shivee Tolgoi Property is about 540 kilometres due south of Ulaan Baatar. By road it is about 640 kilometres
with travel time for this distance by four-wheel drive vehicle of about 12 hours. The highway leaving Ulaan Baatar
is paved for first 26 kilometres then it turns into a series of unimproved rough dirt roads that can be followed
southward through grassy steppe lands to Mandalgovi (Figure 1 of the Technical Report). Further south in the drier,
rocky desert terrain the roads become a series of well established to nebulous dirt tracks. Familiarity with navigation
by global positioning system is useful in the southernmost regions of the Gobi desert; road signs are nonexistent and
travel is commonly done overland by whatever route seems expedient.




::ODMA\PCDOCS\CMLAW\974000\8                               -4-
The climate in the Gobi desert is typical of an interior landlocked plateau – highly variable with rapid changes and
extremes. The sky remains clear for most of the year and makes for intense sunlight. Summers (July to September)
are hot; temperatures commonly reach 40 degrees Celsius. Winters (November to April) are typical of subarctic
interior regions - cold with temperatures to minus 30 degrees, or lower. Snow in the Gobi is not uncommon during
the winter. In spring (May to June) and early July it can be very windy with strong winds from the northwest giving
rise to sandstorms and thunderstorms. A small amount of rainfall generally takes place during the warmest part of
the year (mid-July to September) but total annual precipitation is commonly less than 100 millimetres.

Local resources are few. The sparse population is made up of nomadic herders who tend flocks of camels, sheep,
goats and horses. Water supply is dependable from clean wells that appear to have a stable groundwater table at
depths of 1 to 2 metres.

The infrastructure is basic but many of the needs required to support exploration activities can be met locally.
Mandalgovi, Dundgovi Aimag (population around 53,000) is about 300 kilometres due north of Shivee Tolgoi and
Dalanzadgad, Ömnögovi Aimag (population around 45,000) is about 185 kilometres to the west. There can be found
basic services such as fuel and foodstuff supplies, tire and simple mechanical repairs, limited accommodation and
telephone communications. Both cities have airports with scheduled air service to Ulaan Baatar. Small villages such
as Hanbogd, Bayan Ovoo, and other smaller enclaves, offer closer sources of fuel and basic supplies.

Heavy machinery, such as vehicles, bulldozers and excavators, as well as diamond drilling equipment and
generators, can be contracted from Ulaan Baatar and transported to the property in about 24 hours. Another
possibility is to utilize the considerable resources, including diamond drills and personnel, available from Mongol
Gazar. Direct air transportation to the property from Ulaan Baatar by large, multi-passenger helicopters can be
arranged with the Mongolian national airline, MIAT.

Despite the remoteness of the southern Gobi there are factors conducive to economic development in the region.
Road building will not be difficult in the generally flat-lying to gently rolling terrain where essentially straight line
routing is possible. Railway connection to the Trans Mongolian Railway is a possible but daunting option that would
require a 400 kilometre rail line to be built to the northeast. However if a rail connection is established between the
nearby Oyu Tolgoi deposit and the Chinese national rail system, a spur line extension to Shivee Tolgoi Property of
only 12 kilometres will be needed. Electric power will most economically be derived from local coal-fired facilities,
as is common throughout much of Mongolia. Abundant supplies of thermal coal are found at Tavan Tolgoi about
125 kilometres to the northwest of Shivee Tolgoi.

The physiography of the southern Gobi desert is characterized by pebbly flatlands and fields of hummocky sand
dunes a metre to two metres in height, characteristically anchored by hardy plants. The flat and sandy zones form
low-lying areas between the more widespread undulating rocky rises, ridges and small ranges of hills. Topographic
relief in the region is rarely more than 50 metres, with mean elevation around 1200 metres.

History

Government regional geological, geochemical and geophysical surveys were conducted in the region from 1985 to
1988 by the Mongolian Geochemical Research Bureau. The resulting geochemical and metallogenic map (Map
K-48-XI) shows a regional soil geochemical anomaly for arsenic and molybdenum as well as lead and manganese
covering a few square kilometres at Shivee Tolgoi. Samples were not analyzed for gold. The Oyu Tolgoi deposit,
about 10 kilometres to the southeast, is shown on the same map as a porphyry copper occurrence with a surrounding
zone anomalous in molybdenum, arsenic, strontium, silver and bismuth. The absence on the maps of a copper
anomaly at both Shivee Tolgoi and Oyu Tolgoi is puzzling. It is perhaps explained by the intense leaching of copper
sulphide minerals in outcroppings and the mobility of copper in this environment, coupled with the limitations of the
spectrographic analytical method utilized. Drilling at Oyu Tolgoi demonstrates that copper is abundant at depth in
the geochemically anomalous zone.




::ODMA\PCDOCS\CMLAW\974000\8                              -5-
During the mid 1990s after new mining legislation was drafted in Mongolia, the southern Gobi desert region became
active for exploration in what became known as the ‘South Mongolian (porphyry) copper-gold belt’. The area was
examined by a number of companies and the importance of the Oyu Tolgoi occurrence was recognized by geologists
of Magma Copper Company. After the takeover of Magma Copper by BHP in 1996, exploration continued at Oyu
Tolgoi until 1999 when BHP scaled back their worldwide exploration efforts. By 1999 a significant copper-gold
resource had been identified at Oyu Tolgoi (Perelló et al., 2001). During this time BHP also conducted preliminary
geological investigations and some reconnaissance geophysical work in other areas, including Shivee Tolgoi. In
May, 2000 Ivanhoe Mines concluded an option agreement with BHP and took over exploration at Oyu Tolgoi.
Ivanhoe Mines has been conducting an aggressive exploration programme there since that time.

Mongol Gazar acquired exploration concessions 3148X (Shivee Tolgoi) and 3150X (Javhlant) in April 2001; they
surround the Oyu Tolgoi concession (Figure 2 of the Technical Report). The Company entered into an Option
Agreement with Mongol Gazar dated effective July 25, 2002 providing for the acquisition of a majority interest in
these two leases and an adjoining lease to the west (3136X Togoot). Work to date at the Shivee Tolgoi Property
consists of prospecting, rock and soil sampling, geological mapping in zones of interest and induced polarization
(“IP”) and magnetometer surveys. Mongol Gazar has acquired BHP’s IP and magnetic survey information. The
work was performed on parts of Zones I, II and III (Figure 3 of the Technical Report) on a reconnaissance basis with
lines spaced at 500 metre intervals.

Geological Setting

Regional Setting

The South Gobi desert lies partly within a region that has been referred to as the South Mongolian tectonic unit
(Figure 1 of the Technical Report). The tectonic units in Mongolia are shown on Figure 1. They include the South
Mongolian (SM), Tuva-Mongol (T-M), Ozemaya (OZ), Khangai-Khentei (K-K), Kharkhirin-West Sayan (K-WS)
and South Gobi (SG). The dashed line on the figure outlines the limits of Mesozoic magmatism.

The geotectonic setting has been summarized by Perelló et al., (2001) from a large body of published scientific
literature. The region is underlain predominantly by Paleozoic volcanic, sedimentary and intrusive rocks with
widespread Mesozoic terrigenous cover. The volcanic rocks constitute the southernmost of three east-westerly
trending belts of volcanic rocks in Mongolia; the other two belts are to the north and pass through Ulaan Baatar and
Erdenet (Figure 1 of the Technical Report). During the Paleozoic the southern Mongolian region underwent
accretion of numerous magmatic arcs and continental blocks. The Ordovician-Silurian units are thought to have
formed in ocean-margin environments and the Devonian-Carboniferous represent mature island or continental arcs.
A collage of tectonic units was assembled by the Permian through subduction processes with attendant collision,
crustal shortening and strike-slip displacements. In the late Paleozoic rifting took place, accompanied by some
alkalic magmatism in a mature continental setting. The Mesozoic saw widespread deposition of terrigenous
sediments, first in thrust-controlled foreland basins then later in more restricted lacustrine settings and finally in the
Late Cretaceous as alluvial plain and eolian red bed deposits. The Late Cretaceous also began the onset of
increasingly arid conditions.

Local and Property Geology

Geological mapping in the areas of main geological interest, mainly Zones I, II and III, is shown on Figure 3. There
are two main stratigraphic map-units believed to be Siluro-Devonian in age on the property. They occur as relatively
flat-lying volcanic successions. In the northern part of the map area there are basaltic andesite flow rocks and the
southern part of the area contains pyroclastic rocks of similar composition, mainly lithic ash and lapilli tuffs.




::ODMA\PCDOCS\CMLAW\974000\8                              -6-
Outcroppings in the region tend to be dark in appearance due to a thin surficial veneer known as desert varnish.
When broken, the andesitic flowrocks are dark green to grey in colour and tend to be massive, fine-granular rocks
without notable phenocrysts or fabric. Rarely, mafic minerals can be seen, commonly as chloritized indistinct grains.
Monomictic flow breccias occur locally. The pyroclastic rocks are massive to crudely layered with locally well
bedded sections. The lithic fragments tend to be paler in colour than the matrix. Most commonly found fragments
are subrounded and range in size from coarse ash to lapilli; pyroclastic breccias are rare. If sedimentary rocks are
present they are recessive weathering and are greatly subordinate to the volcanic rocks. Drilling will be needed to
determine the stratigraphic sequence in any detail. At the nearby Oyu Tolgoi property similar rocks are described in
which sedimentary units interbedded with volcanic rocks have been intersected in drill holes.

The main intrusive rocks in the map area, as shown on Figure 3, consist of three map units. The largest bodies are
granitic rocks that occur to the west of the area shown on the figure. They are possibly Devonian in age. In the
eastern part of the mapped area the large granitic body in the southeast contains zones of syenitic rocks. This
intrusion might be part of, or related to, the Permian alkaline Hanbogd complex or massif. There is no obvious
genetic relationship between these large granite bodies and mineralization; hydrothermal alteration appears to be
related to the smaller intrusions described below. Possibly related to, or younger than the large granitic intrusions is
the east-west trending dyke that cuts Zone III and the northern part of Zone II. The composition of this dyke ranges
from quartz bearing granite to a feldspathic, quartz deficient rock of syenitic composition. The youngest intrusive
bodies are rhyolite dykes, sills and small domes/flow domes. They occur as dark-weathering splintery rocks that
commonly form flow banded outcroppings that tend to be the most prominent ones in the area. These cream colored
to pale grey, sugary fine-granular rock in which rare, small rounded quartz phenocrysts can be seen form late,
crosscutting bodies seemingly emplaced along fault zones.

Not shown on Figure 3 area because of their small size are a number of small, poorly exposed, fine grained
quartzose intrusions of possible quartz dioritic composition and syenite dykes. These rocks are probably the most
interesting ones in the area because, at least in Zone III, they are hydrothermally altered and are possibly genetically
associated with mineralization. The syenite dykes appear to be inter- or intra-mineral. This is implied by IP surveys
indicating (Figure 5 of the Technical Report) that syenite dykes might have acted as impermeable barriers to
hydrothermal fluids. This spatial relationship between syenite dykes that appear to pond hydrothermal fluid giving
rise to good copper-gold mineralization has been described at Oyu Tolgoi.

Some quartz-feldspar porphyry dykes containing a small amount of pyrite were noted in the eastern side of Zone I.
They occur near the edge of the alteration zone as pale, buff coloured, north-northeasterly trending, steeply dipping
bodies a few metres wide; undoubtedly they are also present elsewhere on the property.

There is a small area covered by Cretaceous sedimentary rocks in the northeastern part of concession 3148, well
away from the principal zones of interest.

The dominant structures on the property appear to be steep northerly to northeasterly trending faults that create a
block faulting geometry in the overall gently dipping stratigraphic units. The faults mark abrupt changes in
geophysical patterns or define boundaries to alteration zones. Faults are rarely expressed in outcrops due to poor
rock exposure, especially in the more highly altered zones. In quartz-alunite rocks of Zone I near Shivee Tolgoi peak
(Figure 3 of the Technical Report) there is locally developed a steeply-dipping foliation trending roughly north-
south parallel to the larger faults along the margins of this alteration zone. In the eastern part of Zone I limonitic and
vuggy chalcedonic quartz veins trending around 030 degrees were noted alongside a quartz-feldspar porphyry dyke.
Similar auriferous veins in the northern part of Zone III also trend about 030 degrees. Within the fault blocks are
some steeply dipping brittle structures trending west northwesterly with a fairly consistent azimuth trend of 110
degrees. These late fracture sets commonly have thin planar breccia bodies associated with them. The breccias are
rarely more than a few centimetres in width and contain a mosaic of angular clasts in open clast-supported cavities.
Mullions on these late fracture walls indicate normal movement stepping down to the south with a sinistral
component.




::ODMA\PCDOCS\CMLAW\974000\8                              -7-
Exploration

Geological mapping, prospecting and the examination and sampling of hydrothermally altered rocks have been
effective in identifying areas of interest for further exploration at the Shivee Tolgoi Property. An old technique of
panning samples of sediment, colluvium and crushed rocks commonly used by Russian and Mongolian
explorationists has been used for mineralogical studies by either microscopic examination of mineral grains or study
of grain mounts in polished sections. This low technology approach has yielded some useful information about
mineralization. For example, grains of chalcocite, bornite and molybdenite have been discovered in a number of
samples from Zone III.

Geochemical sampling with nearly 200 samples collected has been done along east-west lines with 200 metre
spacing across zones with greater than seven percent IP chargeability. Samples have been collected at 40 or 80 metre
intervals from survey lines in most of the areas outlined in Figure 3. The samples are screened using a 0.125
millimetre mesh screen and sample fines are analyzed for arsenic, antimony, copper, zinc, lead, silver, gold, tungsten
and barium. Analysis has been done using dated emission spectrographic techniques so results are considered to be
only semiquantitative. Anomalous values are regarded to be element concentrations that are detectable using this
analytical method. By this rationale, arsenic, gold, silver, copper and zinc are deemed to be “anomalous”. Maximum
values obtained are: As 200 parts per million (“ppm”), Cu 200 ppm, Ag 0.3 ppm, and Zn 500 ppm. Gold values are
generally between 50 and 1000 parts per billion (ppb) but rare samples with parts per million values have been
collected, one having 18.9 ppm. Despite the limitations of the analytical method used, a pattern of clustered multi-
element anomalies has emerged on both flanks of the central spine of quartz-alunite alteration in Zone I coincident
with the zone of high chargeabiity. A similar multi-element anomalous area has been outlined across a fairly broad
part of Zone III.

Geophysical surveys by induced polarization have been the mainstay of exploration on the property by Mongol
Gazar to date. Mongol Gazar uses their own geophysical crews with ELREC-II (BRGM, France) and DIAPIR-E
(ELGI, Hungary) equipment. Time domain with four-second frequency IP surveys are conducted with 100 or 200
metre line spacing using 1200-metre electrode separation and readings along lines at 20 or 40 metre intervals. In
total, Mongol Gazar has completed 127 kilometres of reconnaissance surveys and 48 kilometres of more detailed
surveys.

The most useful parameter – chargeability, is shown on Figure 4 and the results provide an impressive array of large
anomalies with chargeabilities in excess of seven percent. In Zone I low chargeability marks the central zone of
quartz-alunite alteration. Chargeability highs flank this zone, seemingly coincident with a zone of phyllic and clay
alteration and multi-element geochemical anomalies, including samples with gold in the order of one gram per
tonne. Zone III is within a large IP anomaly with a north-south elongation. Particularly interesting is Line 410
around 430 East (Figure 5 of the Technical Report) where it can be postulated that the footwall zone, or margins, of
a syenite dyke that crops out provides an attractive target for testing by diamond drilling similar to mineralization at
Oyu Tolgoi. Zone II produces a strong IP response but represents a hidden, deeper target. Rocks at surface form a
low ridge with relatively unaltered andesite. However the underlying rocks, where they are exposed in a gulley that
cuts the ridge, are pyritic and highly altered by clay minerals. Quartz stockworks nearby are another indication of
porphyry copper style minerlization.

Magnetic surveys generally show an inverse relationship between the IP chargeability anomalies and magnetic
responses: zones with high chargeability display little magnetic response, or the other way around. The magnetic
surveys are most useful for outlining lithologic units, namely intrusive bodies and their hornfelsed contact zones,
fault zones and unaltered mafic-rich volcanic units. The possibility of finding gold-rich cupriferous quartz-
magnetite-K-feldspar and magnetite breccia bodies in the zones with high magnetic response has received only
limited geological investigation and remains largely untested on the property.

Previous exploration on the Shivee Tolgoi Property was conducted by BHP prior to 1999. Areas of interest
corresponding to Zones I to III were identified. Their work constituted a preliminary geological examination but
information and conclusions from their studies are not known to Dr. Panteleyev. Some follow-up geophysical work
was by done by BHP but no trenching nor drilling was attempted; data and results of these IP surveys have been


::ODMA\PCDOCS\CMLAW\974000\8                             -8-
purchased by Mongol Gazar. This early reconnaissance geophysical survey work was apparently let out to a local
contractor. The work identified geophysical IP anomalies that roughly coincide with those recently defined by
Mongol Gazar on Zones I to III (Figure 4 of the Technical Report). However the interpretation of the older results
produced by the local contractor resulted in a highly unusual pattern with oddly shaped anomalies that show on their
maps as discrete blips that follow the survey lines in the manner of a strings of beads. These results have been
judged to be suspect by Mongol Gazar geophysicists and they have repeated the IP surveys in the zones of interest,
and over a broader area.

Mineralization

South Mongolian terrane hosts a large number of gold and gold-copper deposits. Some of the more notable ones are
shown on Figure 1; many of these have been discovered only recently. The largest mineral occurrences, the
porphyry copper-gold-molybdenum deposits, are associated with high-level intrusive rocks, commonly clusters of
small intrusive bodies and related hydrothermal breccias. In addition to porphyry copper mineralization, through
some unusual geologic circumstances, this Mongolian Paleozoic arc terrane has preserved a number of high level
subvolcanic zones that overlie potentially mineralized intrusions. These intensely altered rocks generally are quickly
eroded and are rarely preserved in rocks older than Tertiary. The intensely hydrothermally altered rocks can
represent the uppermost parts of porphyry deposits and are referred to as ‘lithocaps’ by Sillitoe (1995). The lithocap
alteration zones themselves, or more commonly the rocks peripheral to or underlying them, are prospective for vein,
breccia and replacement mineralization with gold-silver deposits of epithermal type, with or without base metals.

The alteration style observed at Zone I is consistent with that of (part of) a porphyry copper lithocap. Zoning
appears to be typical of such an environment. There is a central, highly resistant central zone of massive quartz-
alunite (the so called secondary or hydrothermal quartzite or ‘beresite’ in Russian literature). Both the quartz and
alunite form dense, compact, extremely fine grained, massive to highly brecciated outcrops, typically with abundant
red to black hematite ochre and rarely fine grained specular hematite on fractures. The alunite is very fine grained to
porcelain-like and can be supergene or the product of near surface acid gas condensate reflux; supergene kaolinite is
common. This alteration assemblage is rarely mineralized. Flanking and underlying this resistant central zone are
more recessive alteration zones that typically progress outward from assemblages of advanced argillic clay minerals
to quartz-sericite-pyrite, sericite/illite, clay/chlorite and chlorite. Mineralization is most like to occur in the quartz-
sericite-pyrite or flanking alteration zones. The presence of quartz stockworks in the southern and eastern parts of
Zone I, away from the quartz-alunite core area, provide a good indication that this is a porphyry copper
environment. A chip sample of the quartz stockworks at the southern end of Zone I (sample AX1, Figures 3 and 4 of
the Technical Report) contains 0.01 gram gold per tonne; similar stockworks are also found along the northeastern
margin of the zone. Alternatively, the quartz-alunite advanced argillic, acid-sulphate alteration might be related to
underlying or peripheral high-sulphidation style epithermal gold-silver-copper mineralization.

In this alteration zoning model the high IP chargeability along the flanks of the quartz-alunite alteration in Zone 1
(Figure 4 of the Technical Report) would correspond to the potentially mineralized quartz-sericite-pyrite alteration
and would be the prime exploration target. Mapping and sampling suggests that this recessive zone has sericitic
alteration. Similarly in Zone III the alteration in the central alteration area appears to be sericite/illite and
illite/chlorite. There the rocks are limonitic and are leached near the surface so rock exposures are now siliceous.
Small amounts of quartz-alunite have been noted in the eastern part of the altered zone by Mongol Gazar geologists
and this suggests that erosion is deeper here than at Zone I. Zone III possibly exposes the eroded base of the quartz-
alunite, advanced argillic lithocap and corresponds to the deeper, mineralized part of a vertically stacked lithocap
alteration system. Otherwise there is little to be seen at the surface in Zone III from the poorly-exposed sparse,
leached outcrops and granular, siliceous outcrop residue. However, along the northwestern border of the zone sparse
quartz stockworks are present with translucent, grey quartz veinlets cut by white quartz veinlets. This is a reassuring
indication that this is an alteration typical of a porphyry copper environment. A sample from a small outcrop
containing quartz stockworks (sample AX2, Figures 3 and 4 of the Technical Report) contains 0.01 gram gold per
tonne. Further to the north of Zone III, but following the north-trending structural grain of the zone, a single
composite chip sample taken from a series of translucent grey chalcedonic to fine-granular quartz lenses up to 40
centimetres in width along a 45-metre discontinuous strike length produced an assay of 8.05 grams of gold per
tonne. This sample (AX3 on Figures 3 and 4 of the Technical Report) attests to the ability of hydrothermal fluids in


::ODMA\PCDOCS\CMLAW\974000\8                               -9-
this zone to carry gold.

Leaching of sulphide bearing outcrops has taken place but the amount of limonite is generally sparse and appears to
consist of mainly goethite with a small jarosite component. Limonite minerals occur most commonly as
disseminated spots and patches in small cavities, and as thin selvages on fractures. Pyrite is found in many of the
surface exposures (Figure 3 of the Technical Report). These mineralogical observations suggest that the potential for
the development of a significant supergene copper blanket is low. However IP results suggest otherwise. Cross
sections such as that shown on Figure 5 of the Technical Report suggest that there might be significant leaching with
underlying oxide and supergene mineralization to depths of as much as 100 metres, or more. Trenching and drilling
will be required to determine the depth of oxidation and the extent of a potential underlying copper enrichment
‘blanket’.

The potential on the property for copper-gold mineralization in zones with sheeted quartz-magnetite veins with K-
feldspar, and magnetite breccias such as those at Kharmagtai and parts of the Oyu Tolgoi deposit was not
investigated. The zones of (very) high magentic response to the west of Zone III need to be checked for this style of
mineralization.

Drilling

There has been no drilling to date. Work on the Shivee Tolgoi Property has consisted of prospecting, rock and soil
sampling, geological mapping and IP and magnetometer surveys. See “The Shivee Tolgoi Property in Mongolia –
History”, above.

Sampling and Analysis

Weathering and surficial leaching, especially in the recessive hydrothermally altered rocks, makes for poor rock
exposure in areas of interest and provides little material to sample that is representative of primary mineralization.
A systematic study of the limonites and a leached capping interpretation would be useful in this area to assess the
base metal potential. Three chip samples taken by Dr. Panteleyev were analyzed for gold in an attempt to gain some
indication of mineralizing potential of the hydrothermal systems. Two samples were from quartz stockworks, one
from the southernmost part of Zone I and the other from the northwestern fringe of Zone III. Both samples contain
0.01 gram gold per tonne. A third sample from a quartz vein at the north end of Zone III contains 8.05 grams gold
per tonne. This affirms that there were hydrothermal fluids in Zone III highly capable of transporting and depositing
gold. The three chip samples were prepared and analyzed by fire assay at the Ulaan Baatar laboratory facilities of
Analabs Pty Ltd., a subsidiary of Scientific Services Limited, an accredited Australian commercial laboratory
service company.

Mineral Resource and Mineral Reserve Estimates

There are no mineral resource or mineral reserve estimates at this point of time.

Exploration and Development

The Technical Report recommends two phases of exploration as follows. The resources committed to each phase are
given below (see “Cost Estimate”). Priority areas are Zones I and III on concession 3148X, Shivee Tolgoi. A
secondary priority, Zone II, should be tested later by drilling. In successive exploration programmes other zones of
interest should be explored further by IP surveys, geological mapping and systematic sampling in the Shivee Tolgoi
concession and outside it, such as Togoo Uul in concession 3136, and also concession 3150X.

The most expedient way to assess the mineralization is to conduct an extensive trenching programme with
mechanized trenching by excavator. Trenching should be done along east-west lines and locations should be
determined by geologists on the basis of their alteration studies coupled with IP data, notably high chargeabiity
zones.



::ODMA\PCDOCS\CMLAW\974000\8                            - 10 -
Geological mapping and sampling should take place in all trenches. Systematic and continuous rock chip assay
samples should be taken from zones of interest in all the trenches; ideally all trenches should be sampled along their
full lengths. Assay samples should be analyzed in a certified commercial geochemical service laboratory using high-
quality fire assay for gold as well as standard multi-element analysis for other metals. Quality control by use of
blanks, standards and hidden duplicate samples should be a priority item. All data should be recorded and
maintained in digital data bases.

There is a need for an independent reassessment of all geophysical data collected to date. Based on this analysis,
additional geophysical surveys should be conducted where needed.

Geological mapping and examination on surface by geologists should continue in main areas of interest in order to
guide the trenching and sampling programme. Prospecting and geological investigation should be devoted to other
parts of concessions 3148X and 3150X. During Phase II substantial resources should be devoted to a systematic
examination of Togoo Uul alteration zone, and other mineral prospects and areas with indications of mineralization
in concession 3136X.

Drilling of selected targets in Zones I and III, using coring diamond drills, is a priority.

Cost Estimate

Costs relate to work conditions in Mongolia; to the extent possible, Mongol Gazar will provide equipment,
personnel and experience to the project. The application of expenditures is outlined below (in U.S. dollars):

Phase I

Management, Professional and Overhead Costs

          Exploration and camp personnel                                    $ 70,000

          Travel                                                            $ 20,000

          Vehicle rentals                                                   $ 17,500

          Accommodation                                                     $ 35,000

Trenching                                                                   $ 25,000

Geophysical surveying                                                       $ 15,000

Diamond drilling (all inclusive cost 2000 metres @ $100/metre)              $200,000

Geochemical Analyses and assays                                             $ 65,000

Miscellaneous – Field supplies, rentals, freight, communications            $ 10,000

Contingencies @ 10%                                                         $ 45,750


                                                         Total, Phase I     $503,250

Contingent on a favourable independent review of the results of Phase I, a second phase of exploration should
commence during the second year of the Option Agreement.




::ODMA\PCDOCS\CMLAW\974000\8                               - 11 -
Phase II

Management, Professional and Overhead Costs

           Exploration and camp personnel                               $ 85,000

           Travel                                                       $ 30,000

           Vehicle rentals                                              $ 20,000

           Accommodation                                                $ 38,000

Trenching                                                               $ 20,000

Geophysical surveying                                                   $ 20,000

Diamond drilling (all inclusive cost 6000 metres @ $100/metre)          $ 600,000

Geochemical Analyses and assays                                         $ 93,750

Miscellaneous – Field supplies, rentals, freight, communications $ 10,000

Contingencies @ 10%                                                     $ 91,675


                                                      Total, Phase II $1,008,425

Private Placement

The Company announced on June 6, 2002 that it had engaged Canaccord Capital Corporation (“Canaccord”) to act
as its agent in the private placement of 8,000,000 units at a price of $0.10 each. Each unit will consist of one
common share and one-half of a share purchase warrant. Each whole warrant will entitle the holders to purchase
one additional common share for one year at a price of $0.20. The private placement is subject to regulatory
approval. In consideration of acting as agent in the private placement Canaccord will be issued that number of units
equal to 8% of the units placed in the private placement. The units issued to Canaccord will be identical to the units
placed in the private placement. A finder’s fee of 400,000 (pre-consolidated) common shares of the Company will
be paid in connection with the proposed private placement.


                                                 RISK FACTORS

Our securities should be considered a highly speculative investment and investors should carefully consider the
following information about these risks, together with other information contained herein. If any of the following
risks actually occur, our business, results of operations and financial condition could suffer significantly.

Risks of Exploration and Development

The property in which we have the right to earn an interest is in the exploration stage only and is without a known
body of commercial ore. As an exploration company, we have a history of losses. Development of any properties
will only follow upon obtaining satisfactory results. Mineral exploration and development involves a high degree of
risk and few properties which are explored are ultimately developed into producing mines. There is no assurance
that our exploration and development activities will result in any discoveries of commercial bodies of ore. The long-
term profitability of our operations will be in part directly related to the cost and success of our exploration
programs, which may be affected by a number of factors.



::ODMA\PCDOCS\CMLAW\974000\8                            - 12 -
Substantial expenditures are required to establish reserves through drilling, to develop processes to extract the
resources and, in the case of new properties, to develop the extraction and processing facilities and infrastructure at
any site chosen for extraction. Although substantial benefits may be derived from the discovery of a major deposit,
no assurance can be given that resources will be discovered in sufficient quantities to justify commercial operations
or that the funds required for development can be obtained on a timely basis.

Operating Hazards and Risks

Mineral exploration involves many risks which even a combination of experience, knowledge and careful evaluation
may not be able to overcome. Operations in which we have a direct or indirect interest will be subject to all the
hazards and risks normally incidental to exploration, development and production of resources, any of which could
result in work stoppages, damage to property and possible environmental damage. We currently do not maintain
any insurance coverage against operating hazards. We may become subject to liability for pollution, cave-ins or
hazards against which we cannot insure or against which we may elect not to insure. The payment of such liabilities
may have a material, adverse effect on our financial position.

Fluctuating Prices

Our revenues, if any, are expected to be in large part derived from the extraction and sale of precious and base
metals such as gold, silver and copper. The price of those commodities has fluctuated widely, particularly in recent
years, and is affected by numerous factors beyond our control including international, economic and political trends,
expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns,
speculative activities and increased production due to new extraction developments and improved extraction and
production methods. Mongolian law requires the sale or export of gold mined in Mongolia to be made through the
Central Bank of Mongolia and/or other authorized entities at world market prices. The effect of these factors on the
price of base and precious metals, and, therefore, the economic viability of any of our exploration projects, cannot
accurately be predicted.

Compliance with Environmental and Government Regulation

Our operations require permits from various foreign, federal, state, provincial and local governmental authorities and
may be governed by laws and regulations governing prospecting, development, mining production, exports, taxes,
labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine
safety and other matters. Companies engaged in the development and operation of mines and related facilities
generally experience increased costs as a result of the need to comply with applicable laws, regulations and permits.
Permits and studies may be necessary prior to operation of the exploration properties in which we have an interest
and there can be no guarantee that we will be able to obtain or maintain all necessary permits that may be required to
commence construction or operation of mining facilities at these properties on terms which enable operations to be
conducted at economically justifiable costs. To the best of our knowledge, we are in compliance with all material
current laws and regulations which currently apply to our activities. There can be no assurance, however, that all
permits which we may require for its future operations will be obtainable on reasonable terms or that such laws and
regulations would not have an adverse effect on any mining project which we might undertake. To the extent such
approvals are required and are not obtained, we may be delayed or prohibited from proceeding with planned
exploration or development of mineral properties.

Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions
thereunder, including orders issued by regulatory or judicial authorities, causing operations to cease or be curtailed
and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial
actions. Violators may be required to compensate those suffering loss or damage by reason of their mining activities
and may be fined if convicted of an offence under such legislation.

Amendments to current laws, regulations, and permits governing operations and activities of mining companies or
more stringent implementation thereof could require increases in capital expenditures, production costs, reduction in



::ODMA\PCDOCS\CMLAW\974000\8                            - 13 -
levels of production of future mining operations, or require delays in the development or abandonment of new
mining properties.

Our mining operations may be subject to foreign, federal, state, provincial and local laws and regulations governing
the protection of the environment, including laws and regulations relating to air and water quality, mine reclamation,
waste disposal, and the protection of endangered or threatened species. Our mining activities may be subject to
foreign, federal, state, provincial and local laws and regulations for protection of surface and ground water.

If we undertake new mining activities in other jurisdictions, or significantly expand our existing mining operations,
we may be required to obtain preconstruction environmental and land use review and to comply with permitting,
control and mitigation requirements of the jurisdiction in which such operations are to be located. Compliance with
new requirements could impose costs on us in the future, the materiality of which cannot reasonably be predicted at
this time.

Mongolian Regulations

All phases of our operations are subject to the Mineral Laws of Mongolia and the Law on Environmental Protection
as well as the various Taxation Laws. Each of these laws are under almost constant revision and amendments are
made from time to time resulting in stricter standards and enforcement, increased fines and penalties for non-
compliance, which may include loss of licences, more stringent environmental assessments of proposed projects and
a heightened degree of responsibility for companies and their officers, directors and their employees. There is no
assurance that future changes in legislation will not adversely affect our operations. Environmental hazards
unknown to us which have been caused by previous or existing owners or operators of the properties may exist on
the properties in which we hold an interest. More specifically, we will be required to deposit 50% of our proposed
reclamation budget with the local Province Governors office which will be refunded only on acceptable completion
of land rehabilitation after mining operations have concluded. Even if we relinquish our licences, we will still
remain responsible for any required reclamation.

Competition

The resource industry is intensely competitive in all of its phases, and we compete with many companies possessing
greater financial resources and technical facilities than ourself. Competition could adversely affect our ability to
acquire suitable producing properties or prospects for exploration in the future. Accordingly, there can be no
assurance that we will acquire any interest in additional operations that would yield reserves or result in commercial
mining operations.

Inability to Meet Cost Contribution Requirements

We may, in the future, be unable to meet our share of costs incurred under agreements to which we are a party and
we may, as a result, be subject to loss of our rights to acquire interests in the properties subject to such agreements.

Potential Defects in Title to Properties

We have investigated our rights to explore and exploit the properties in which we are to acquire an interest in
Mongolia and, to the best of our knowledge, those rights are in good standing but no assurance can be given that
such rights will not be revoked or significantly altered, to our detriment. The ownership and validity of mining
claims and concessions are often uncertain and may be contested. Should such a challenge to the boundaries or
registration of ownership arise, the Government of Mongolia may declare the property in question a special reserve
for up to three years to allow resolution of disputes or to clarify the accuracy of its mining licence register. We are
not aware of challenges to the location or area of any of the mining concessions and mining claims. There is,
however, no guarantee that title to the claims and concessions will not be challenged or impugned in the future.
Further, the properties in which we are to acquire an interest under the Option Agreement are Exploration Licences
issued initially in March and April 2001. These licences are issued initially for a three-year term with a right of
renewal for two more years, and a further right of renewal for two years, making a total of 7 years. Should the


::ODMA\PCDOCS\CMLAW\974000\8                             - 14 -
appropriate annual fees not be paid nor application for renewal made in a timely fashion, then the licences will
become forfeit.

Fluctuations in Currency Exchange Rates

Fluctuations in currency exchange rates, particularly operating costs denominated in currencies other than United
States dollars, may significantly impact our financial position and results. We face risks associated with fluctuations
in Canadian, U.S. and Mongolian currencies.

Political and Economic Instability and Government Regulation

All of our exploration and development activities will occur in Mongolia and, as such, we may be affected by
possible political or economic instability in this country, government regulations relating to the mining industry and
foreign investment therein, and the policies of other nations in respect of Mongolia. Any changes in regulations or
shifts in political conditions are beyond our control and may adversely affect our business. Our operations may be
affected in varying degrees by government regulations, including those with respect to restrictions on production,
price controls, export controls, income taxes, expropriation of property, employment, land use, water use,
environmental legislation and mine safety. The regulatory environment is in a state of continuing change and new
laws, regulations and requirements may be retroactive in their effect and implementation. Our operations may also
be affected in varying degrees by political and economic instability, economic or other sanctions imposed by other
nations, terrorism, military repression, crime, extreme fluctuations in currency exchange rates and high inflation.
Changes in resource development or investment policies or shifts in political attitude in Mongolia may adversely
affect our business, although it should be noted that Mongolian legislation currently offers “stability agreements” for
foreign investment companies for 10 to 15 years covering taxation, importation of equipment and other specific
rights. The effect of these factors cannot be accurately predicted.

Earnings and Dividend Record

We have no earnings or dividend record. We have paid no dividends on our common shares since incorporation and
do not anticipate doing so in the foreseeable future. We do not generate any cash flow from operations and could
not expect to do so in the foreseeable future.

Financing Risks

We have not had any active mineral exploration properties since we abandoned our interest in the Santa Rosa
Property in Costa Rica. Our past operations have not generated any cash flow. We now intends to focus our
attention on the Shivee Tolgoi Property. Any work on the Shivee Tolgoi Property will require additional equity
financing. If the Company seeks additional equity financing, the issuance of additional shares will dilute the
interests of our existing shareholders. Although we have successfully raised funds in recent years through share and
warrant issuances, there is no assurance that additional funding will be available to allow us to fulfil our obligations
on existing exploration properties. Failure to obtain such additional financing could result in delay or indefinite
postponement of further exploration and the possible, partial or total loss of our potential interest in certain
properties.

Conflicts of Interest

Certain of our officers and directors may be or become associated with other natural resource companies that acquire
interests in mineral properties. Such associations may give rise to conflicts of interest from time to time.

Directors and officers who hold positions in or are otherwise affiliated with other natural resource companies are:
Lindsay Richard Bottomer, who is also President and a director of Southern Rio Resources Ltd., a gold and silver
exploration company with properties in Canada, and a director of Pacific North West Capital Corp., a company
engaged in exploration for platinum group elements in Ontario. Mark H. Bailey, who is President, Chief Executive
Officer and a director of Minefinders Corporation Ltd., a gold and silver exploration company with principal


::ODMA\PCDOCS\CMLAW\974000\8                             - 15 -
properties in Mexico; and Greg G. Crowe, who is a director and Vice-President of Exploration of Acrex Ventures
Ltd., a junior resource company with a gold property in the Michaud Township in Ontario. Any conflicts which
may arise will be dealt with as disclosed below.

Our directors are required by law to act honestly and in good faith with a view to our best interest and to disclose
any interest which they may have in any of our projects or opportunities. In general, if a conflict of interest arises at
a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on
such matter or, if he does vote, his vote does not count. In determining whether or not we will participate in any
project or opportunity, the director will primarily consider the degree of risk to which we may be exposed and our
financial position at that time.

Dependence on Key Management Employees

The nature of our business, our ability to continue our exploration and development activities and to thereby develop
a competitive edge in our marketplace depends, in large part, on our ability to attract and maintain qualified key
management personnel. Competition for such personnel is intense, and there can be no assurance that we will be
able to attract and retain such personnel. Our development, now and in the future, will depend on the efforts of our
key management figures, such as Greg Crowe. The loss of Greg Crowe could have a material adverse effect on us.
We do not currently maintain key-man life insurance on any of our key management employees.

Climatic conditions

Mongolia’s weather normally varies to the extremes, from temperature highs in the summer of 40° Celsius to lows
of minus 40° Celsius in the winter. Such adverse conditions often preclude normal work patterns and can severely
limit mining operations, usually making work impossible from November though to March. Although good project
planning can ameliorate these factors, unseasonable weather can upset programs with resultant additional costs and
delays.

Limited Ability to Hedge or Engage in Forward Sales

While Mongolian law allows a company, by various applications and processes, to export and sell its own gold
production, in practice, this is a difficult matter, with the result that we will have limited ability to engage in forward
sales of, or to hedge, any future gold production.


                          SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth certain of our financial information on a consolidated basis for the last three fiscal
years:

                                                                      Fiscal Years Ended April 30
                                                         2002                    2001                     2000
Results of Operations:

Expenses
  General and administrative                       $     37,807           $     36,334              $    31,980
  Management and consulting                                   0                      0                   40,000

Loss before other items                                (37,807)                (36,334)                 (71,980)

Other items
  Interest income                                         2,911                   8,619                    6,636
  Write-off of mineral properties                             0               (324,455)                        0




::ODMA\PCDOCS\CMLAW\974000\8                              - 16 -
                                                                                      Fiscal Years Ended April 30
                                                                 2002                            2001                            2000
Loss for the year                                              (34,896)                        (352,170)                       (65,344)

Basic and diluted loss per share                                $(0.01)                           $(0.01)                      $(0.01)

                                                                                               As at April 30
                                                                2002                               2001                             2000
Balance Sheet Data:
Cash and equivalents                                    $      173,128                    $      208,060                $      237,492
Working capital                                                173,664                           208,560                       236,275
Total assets                                                   178,275                           213,005                       563,986
Long-term liabilities                                                0                                 0                             0
Total liabilities                                                4,611                             4,445                         3,256
Total shareholders’ equity                                     173,664                           208,560                       560,730

The following table sets forth certain of our financial information on a consolidated basis for the last eight financial
quarters:

                                                                           Quarter Ended
                             April 30,   January 31,   October 31,     July 31,          April 30,      January 31,   October 31,      July 31,
                              2002          2002          2001          2001              2001             2001          2000           2000


Expenses
  General and                 $7,429        $7,708       $16,766        $5,904                $4,134      $19,459        $6,968            $5,773
  administrative


Loss before other items       (7,429)       (7,708)     (16,766)       (5,904)                (4,134)    (19,459)        (6,968)           (5,773)


Other items
  Interest income                  126          293            902         1,590               1,727         2,235          2,332           2,325
  Write-off of mineral               0             0             0                0      (324,455)                0             0                 0
  properties


Loss for the year             (7,303)       (7,415)     (15,864)       (4,314)           (326,862)       (17,224)        (4,636)           (3,448)


Basic and diluted loss per
share                         $(0.01)       $(0.01)         $(0.01)    $(0.01)                $(0.01)       $(0.01)      $(0.01)           $(0.01)

Dividend Record and Policy

We have not paid any dividends since incorporation. The payment of dividends in the future will depend, among
other factors, on our earnings, capital requirements and operating and financial condition.




::ODMA\PCDOCS\CMLAW\974000\8                                      - 17 -
                              MANAGEMENT’S DISCUSSION AND ANALYSIS

General Information and Results of Operations

We are in the business of acquiring and exploring mineral resource properties that are considered to be in the
exploration stage. In prior years, we were exploring our 100% interest in the Santa Rosa Property in Costa Rica.

During the year ending April 30, 2001, we incurred no costs relating to the exploration of the Santa Rosa Property.
As of April 30, 2001, we decided to abandon our interest in the property and, accordingly, all deferred mineral
property costs were written off to operations. Since then, our management has continued to look for new
opportunities. In May 2002 we announced that we had entered into a binding letter of intent to acquire up to a 60%
interest in three mineral concessions in Southern Mongolia.

During the year ending April 30, 2002, we incurred a loss of $34,896 compared to a loss for the year ending April
30, 2001 of $352,170. The significant items contributing to this loss are interest income of $2,911 (2001 - $8,619),
office and miscellaneous expenses of $804 (2001 - $2,629), accounting, audit and legal fees of $29,951 (2001-
$16,441), regulatory and transfer agent fees of $7,052 (2001 - $17,264) and write-off of mineral property costs of
$Nil (2001 - $324,455).

We have maintained a strong working capital position over the past few years which has covered the net cash used
in operating activities for the year ending April 30, 2002 of $34,932 (2001 - $29,432). Our working capital position
at April 30, 2002 is $173,664 compared to $208,560 at April 30, 2001.

We propose to proceed with the exploration of the mineral concessions in southern Mongolia so as to earn our 60%
interest in the concessions. The proposed exploration program represents a significant future expense to us which
will likely be funded by public and/or private offerings of our equity.

For fiscal years beginning after May 1, 2002, we have adopted the Canadian Institute of Chartered Accountants’
new Handbook Section 3870 “Stock-based Compensation and Other Stock-based Payment”. Since this standard is
not applied retroactively and we currently have no outstanding stock options, the adoption of this standard is not
expected to have a significant effect on our current financial position or results of operations.

Our financial instruments consist of cash and equivalents, receivables and accounts payable and accrued liabilities.
Our management is of the view that we are not exposed to significant interest currency or credit risks arising from
these instruments.

Quarterly Information

Selected quarterly information for the eight most recently completed quarters has been provided in the preceding
table.

Liquidity and Capital Resources

Our working capital position at April 30, 2002 is $173,664 that consists predominantly of cash of $173,128. In
conjunction with the acquisition of the Mongolian mineral concessions, we have engaged Canaccord Capital
Corporation to act as our agent in a private placement of 8,000,000 units at a price of $0.10 per unit for gross
proceeds of $800,000. These proceeds along with our current working capital will be used to meet, in part, our short
term operating needs including the completion of our planned Phase I exploration program which is estimated to
cost US$503,250. Our obligations under the Option Agreement with Mongol Gazar is to expend not less than
US$500,000 on expenditures on the Shivee Tolgoi Property before the first anniversary of the Option Agreement.

Contingent on the results of the Phase I exploration program, a Phase II exploration program will begin in the
second year of the Option Agreement with an estimated cost of US$1,008,425. We intend to raise additional funds
through equity financings in order to meet our long-term capital requirements.


::ODMA\PCDOCS\CMLAW\974000\8                           - 18 -
See also “Selected Consolidated Financial Information” for financial information on us for the last eight financial
quarters.


                                         MARKET FOR SECURITIES

Our common shares are listed and posted for trading under the stock symbol “ENS” on the TSX Venture Exchange.


                                        DIRECTORS AND OFFICERS

The following table sets forth the name, municipality of residence, office and principal occupation of each of our
directors and senior officers as at the date of this Annual Information Form. Each director is elected by the
shareholders at the annual general meeting and holds office until our first annual general meeting following the
director’s election or appointment. Each officer is appointed by the board of directors and holds office at the
pleasure of the board of directors.



      Name and Municipality of           Position with Company                 Principal Occupation
            Residence
 Lindsay Richard Bottomer(1)             Director (since June 28, 2002)        President and Director, Southern Rio
 North Vancouver, British Columbia                                             Resources Ltd. (July 2001 – present);
 Canada                                                                         VP Exploration, IMA Exploration
                                                                               Inc. (May 1999 – July 2001); VP
                                                                               Exploration, International Gold Corp.
                                                                               (February 1998-December 1998);
                                                                               Director, Canadian Exploration, Echo
                                                                               Bay Mines (November 1994-
                                                                               December 1997); VP New Projects,
                                                                               Prime Equities Intl. (February 1991 –
                                                                               November, 1994).
 Mark H. Bailey(1)                       Director (since June 28, 2002)        President, CEO and Director,
 Bellingham, U.S.A.                                                            Minefinders Corporation Ltd. (1995-
                                                                               present); Consulting Geologist, Mark
                                                                               H. Bailey & Associates LLC (1984 –
                                                                               present); Exploration Manager,
                                                                               Equinox Resources Inc. (1990-1994).
 Greg G. Crowe(1)                        President, CEO and Director (since    Self-employed (1997-present);
 Bowen Island, British Columbia          July 3, 2002)                         Director of Acrex Ventures Ltd. (June
 Canada                                                                        2001-present); Director, Yuma
                                                                               Copper Corp. (October 1994-
                                                                               present); President, Azimuth
                                                                               Geological Inc. (1985-1994).
 Jeffrey Ross Turner                     Director (since August 16, 2002)      Partner, Zata Law LLC since 1999;
 New Zealand                                                                   Director, Lifestream International
                                                                               since 1994; Formerly, Director of
                                                                               BDM Grange Ltd. from 1981 to
                                                                               1993.
 Myanganbayar Tseveenjav                 Director (since August 16, 2002)      Researcher in nuclear physics;
 Mongolia                                                                      Director General, Mongol Gazar Co.,
                                                                               Ltd. from September 1989 to present.


::ODMA\PCDOCS\CMLAW\974000\8                          - 19 -
       Name and Municipality of          Position with Company                   Principal Occupation
             Residence
 Kevin E. Hisko                          Corporate Secretary (since June 28,     Partner of Campney & Murphy,
 West Vancouver, British Columbia        2002)                                   Barristers and Solicitors since 2000.
 Canada


(1)   Member of the Audit Committee.



Shareholdings of Directors and Officers

To our knowledge, as at July 31, 2002, no directors and officers, as a group, beneficially owned, directly or
indirectly, or exercised control over any common shares (not including common shares issuable upon the exercise of
stock options).

There are two controlling shareholders, neither of whom is a director or officer, who respectively beneficially hold
4,496,000 common shares (Taylor Housser) and 5,230,000 common shares (Shapur Salem).

Committees of the Board of Directors

Our board has an Audit Committee which oversees the retention, performance and compensation of our independent
auditors, and the establishment and oversight of our systems of internal accounting and auditing control. The
members of our Audit Committee are Lindsay Richard Bottomer, Mark H. Bailey and Greg Crowe.

We do not have a Compensation or Corporate Governance Committee.

Corporate Cease Trade Orders or Bankruptcies

Except as noted below, to the best of our knowledge, no current director, officer or controlling shareholder has been
made the subject of a cease trade or similar order, or become a bankrupt within the last 10 years. A Cease Trade
Order, which is still outstanding, was issued in respect of the shares of Yuma Copper Corp., a company of which
Greg Crowe is a director, on January 2, 1998 by the British Columbia Securities Commission for failure to file
financial statements. Yuma Copper Corp. was delisted from the Vancouver Stock Exchange on March 1, 1999 for
failure to pay its annual sustaining fees.

Penalties or Sanctions

To the best of our knowledge, no current director, officer or controlling shareholder has been subject to any
penalties or sanctions under securities law or under a court order.

Conflicts of Interest

Certain of the directors hold various positions or are otherwise affiliated with other natural resource companies. As
to the nature of these conflicts and how they will be dealt with, see “Risk Factors – Conflicts of Interest”.


                                        ADDITIONAL INFORMATION

Copies of the following documents may be obtained upon request from our Corporate Secretary, Kevin Hisko.
Mr. Hisko can be contacted c/o Campney & Murphy, 2100 – 1111 West Georgia Street, Vancouver, British
Columbia, V6E 4M3:




::ODMA\PCDOCS\CMLAW\974000\8                           - 20 -
(1)      this Annual Information Form, together with one copy of any document, or the pertinent pages of any
         document, incorporated by reference in the Annual Information Form;

(2)      our comparative financial statements for our most recently completed financial year for which financial
         statements have been filed together with the accompanying report of the auditor and one copy of our most
         recent interim financial statements that have been filed, if any, for any period after the end of our most
         recently completed financial year;

(3)      one copy of our most recent Management Proxy Circular in respect of our most recent annual general
         meeting of shareholders that involved the election of directors; and

(4)      one copy of any other documents that are incorporated by reference into the preliminary short form
         prospectus or the short form prospectus and are not required to be provided under paragraphs (1), (2) or (3)
         above.

At any other time, one copy of any documents referred to at paragraphs (1) to (4) above may be obtained upon
request from our Corporate Secretary, provided that we may require the payment of a reasonable charge if the
request is made by a person or company who is not one of our shareholders.

Additional information including directors' and officers' remuneration and indebtedness, principal holders of our
securities, options to purchase securities and interests of insiders in material transactions, if applicable, is contained
in our Management Proxy Circular for our annual general meeting to be held on August 16, 2002. Additional
financial information is provided in our comparative financial statements and notes thereto for the year ended
April 30, 2002.




::ODMA\PCDOCS\CMLAW\974000\8                              - 21 -

								
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