UPDATE ON THE MASBATE EXPLORATION PROJECT AS OF OCTOBER, 2009

Following the signing of the Exploration and Option Agreement (EOA) last June 24, 2008 between Geograce Resources Philippines, Incorporated (GEO) and Vale Exploration Philippines, Incorporated (VEPI), field exploration and related activities started in Masbate Island from November, 2008 and are at present continuing although to a limited extent as a consequence of the global economic slowdown.

Geological exploration was conducted by Geograce technical staff in consultation with VEPI following global standard procedures. This included ridge and spur soil sampling and geological alteration mapping within the granted EP-V-2007-004 covering more than 60% of this granted EP (Please see area coverage map here). The soil and rock samples were submitted to McPhar Laboratory in Manila for 30-element ICP chemical assay and fire assay for gold. A sample storage facility was constructed in Mobo town, Masbate Island to ensure integrity of samples.

In addition to the more routine geological techniques mentioned above, geological alteration mapping was aided by the use of reflectance spectroscopy for mineral identification; the use of this technology is perhaps the first time to date in Philippine brownfield exploration. VEPI purchased Terraspec®, a portable analytical spectral device (ASD) designed for field analyses of rocks and soils. It is an ideal tool for analysis of a wide variety of deposit types from epithermal to porphyries, among others.

Sample preparation and ASD operating procedure are as follows. The samples were first arranged in sequence, based on their sample numbers. Each sample is dried, crushed, and homogenized by thorough mixing. After which, it is flattened on a table where a grid consisting of 5 x 5 cells is drawn where the 16 intersection points are then sampled and placed in the chip tray compartment filled to the brim. Each chip tray has 20 compartments, thus containing 20 samples for every tray. They were then labeled accordingly and shipped to Vale Makati Office where the ASD is housed for reflectance spectroscopy analysis. Upon arrival of samples, they are logged in a spreadsheet by tray number for easy tracking should there be a repeat of spectral readings.

The TerraSpec® system is composed of the contact probe attached to a spectrometer using fiber optic cable, as well as a laptop computer that serves as the instrument controller. It has cable attachments to run on AC power but battery packs are also provided for use in the field. Prior to data collection, the machine is first calibrated using a white reference plate called Spectralon®. The contact probe is placed on the Spectralon and the program will start the optimization process and collect dark current. Reflectance calibration is complete when a straight line appears at 1.0 reflectance number; it is now ready to collect data.

For data collection, the contact probe window is held against the sample targets; in this case, it is placed inside the tray compartments where the probe window is covered with soil. A spectrum will be displayed for the particular sample. The spacebar is then pressed to save the spectrum and a beep will be heard indicating saved file. The probe window is wiped to remove any residue from previous samples. It is advisable to cycle twice through the integration time when changing samples since data collection is dynamic.

Soil and rock samples being arranged for dispatch to Mcphar Laboratory.

For data interpretation, the spreadsheet log is modified by adding fields corresponding to the hydrothermal alteration mineral assemblage (i.e. Fe-oxides, clay minerals, etc.). The overall spectrum is first inspected to determine the position and shape of the absorption features. Thereafter, localized spectral regions are looked for, as well as the characteristics of the spectrum (i.e. doublets, single and sharp, single and broad, multiple shoulders or steps, etc.). As a guide, Fe-oxides are evident on the Visible region. H2O + OH features, Al-OH features, and Fe-OH, Mg-OH, and CO3 features are evident on the Short Wave Infrared region, specifically on the 1.4 μm, 2.2 μm, and 2.3 μm respectively.

To date, total samples collected in the granted EP is 2,501 soil samples and 107 altered rock samples which have all been analyzed by ASD while all the rocks and 625 soils have available chemical assays from McPhar.

Aside from the technical activities outlined above, community relations efforts (COMREL) were performed in relation to the Project. An external consultancy firm, Monkey Forest Consultant Ltd (MFC) was contracted to provide support to the partner companies.

At this early stage of the Project, the companies involved understand and recognize the importance to engage and inform the community about the Project. This is an initial stage of COMREL activities which consists basically on contact building, research and community profiling, including:

• Visits/courtesy calls on local government units (LGU) in Masbate Province and all affected municipalities and barangays;
• Visits/initial engagement with key organizations, including NGOs and locally based civil society organizations, Catholic Church Diocesan Social Action Centers, and others;
• Explore communication channels (bulletin boards, barangay assemblies, etc).

The following description of the COMREL activities performed are not restricted to the perimeter of the Exploration Permit EP-V-2009-004, but encompasses all municipalities and its respective barangays within the area of influence of the Project as these are also indirect impact stakeholders.

Contact Building

• Developed contacts with various stakeholders in the local government (Mayors of Masbate City, Uson, Milagros, and Mobo, city administrators and engineers), the Catholic Church (Bishop Baylon), the Church's Social Action Center, and other social and civic leaders. The contacts provided information on the socio-political and economic issues of Masbate, especially as they relate to the mining industry.
• Established contact with the Provincial and Masbate City Planning and Development Offices to identify and learn about the development programs for the province and city, respectively.
• Meeting with provincial line agencies - the Provincial Environment and Natural Resources Office and Provincial Agricultural Office to introduce MFC and the project.
• Meeting with Bishop Joel Baylon and a large group of Masbate parish priests during the clerics gathering on April 15, 2009, to present how a mining exploration process is and also to present the exploration project/program.
• Meeting with the Mayors of Masbate, Milagros, Uson and Mobo to present and discuss the project and seek/obtain an endorsement letter to visit the barangays and inform them about the exploration project.
• Meeting with the barangay captains during the Association of Barangay Captains (ABC) meeting of all municipalities within the area of influence of the project.
• Meeting with the registrars and administrators of the following universities/schools: Masbate College, Osmeña College, Orvilla College, Southern Bicol College (SBC), and the Bicol State Univeristy to introduce the exploration project and explore possible assistance they can extend that may serve the companies' programs and future operations.
• Presented and discussed the project with the Sanguniang Kabataan (SK - youth council) Federation of Masbate.
• Meeting with social civic leaders and government officials from Aroroy, Milagros, Baleno, and Masbate City during a local sports festival.
• Meeting with Governor Elsa Kho at the Provincial Capitol to discuss the project and other mining related issues in the province.
• Regular visits to Fr. Leo Casas of the Social Action Center (SAC) of the Masbate Diocese to update him on the project presentations to the community in the barangays.
• Meeting with Dr. Jorge Dilao, Deputy Provincial Planning Offer to discuss the status of the provincial environment code and its implications on the mining industry.
• Meeting with Vice-Governor Vince Revil and the Provincial Board to present the details of the Masbate Exploration Project, including the principles governing the project and an update of the accomplishments.

Geograce geologist explaining the project to a community in Barangay Sta. Maria, Mobo town. Lower right side of photo shows Mayor Percival Castillo of Mobo and Nilo Brucal of Monkey Forest.

A special session of the Association of Barangay Captains (ABC) of Milagros town was called for the purpose of presenting the Masbate Exploration Project.

Nilo Brucal of Monkey Forest enjoying a horse ride being the best form of access to the interior barangays.