CEO Notes

“Gold is Gold, Paper is Paper"

August 3, 2010

Alex G. was a former Stock Broker colleague during the early 1980’s when I started in the business. He was probably in his mid 70’s when we met and had been a broker for many years. At his age, he had lived through the depression and of course the high inflation of the decade of the 1970’s. This quote was his reality check for young brokers.

Those old enough to recall the 1970’s, remember the run up in gold, oil and commodities during that time. It was a period of high inflation and a languishing stock market in the USA. Canada did very well with resources. Along came Paul Volker, head of the Federal Reserve, who drove interest rates to extremes to kill inflation and in effect, gain control of the economy. He also killed the commodities bull market and created the paper bull market.

Now, here we are thirty years later, commodities are continuing to rise but strangely, inflation is relatively tame, at least according to official government statistics. The paper bull market is in jeopardy. Witness the melt down of two years ago and the recent trouble of Greece et al. Some economic commentators say we will have deflation, some say hyper inflation. I personally fall in the latter camp, as the former, would doom most economies to decades of political uncertainty and most probably civil unrest. There are enough folks commenting on these issues without me adding to the mix. I do belive; the current Federal Reserve head is pumping huge amounts of money into a zero interest rate economy in an effort to prevent a rerun of the dirty 30’s. I’m thinking, my old friend Alex’s quote above may be very much back in vogue.

Where does this preamble fit into our Eskay Mining Corp story? It is exactly that situation we have to operate within. The demand for all commodities including metals and oil in particular are in huge demand by the growing economies of India and China. However, even though the high metals prices entice junior companies to search for new large scale deposits, with a view to replace dwindling supply; few are having success in finding economic ore bodies. We may view many reports of drill results with metal content, but finding an ore body containing enough metal content in an economically mineable situation remains the largest difficulty. I believe the largest economic gain comes in a junior company which goes from zero recorded resources to the possibility of an economic ore body.

I have outlined in my previous CEO notes ( refer to our web site) the difficulty junior companies like Eskay experience in raising funds to explore for these potential discoveries. Most individual investors were scared to risk capital following the massive market meltdown in 2008. To make matters worse, the investment funds who were the source of many funds for our type of Exploration Company, are no longer investing in firms without reserves or resources. I suspect it gives the managers some form of cover for their investment when they have resources of any kind.

In Canada, the governments allow juniors to sell shares to either funds or individual investors, which we then “flow through” to those investors, the write off of those expenses incurred by us in the exploration of our property. That vehicle, in effect was the only reason we were able to raise over $ 3 million to carry our seasons drilling and exploration program. In return for this tax break, Governments receive both of employment and the opportunity of discovery, which will lead to more investment and employment.

I mentioned this spring that our goal for 2010 was to complete a program of about $3 million on the St Andrew Goldfields SIB/Lulu optioned property. We believed this was a key land component for Eskay and our future. This program will allow us to earn 80% interest in the property. We will then control 130,000 acres of the Eskay Rift. Geologic study suggests that the original Eskay Creek deposit was a Volcanogenic Massive Sulfide deposit hosted within the Eskay Rift. This rift runs some 32 Km and is about 10 Km in width. Eskay now will control 28 Km of this rift beginning about 4 km from the Eskay mine.

Our 2008 program (report on Web Site under Projects) made what we feel is a discovery not unlike the original 21A zone of the Eskay Creek mine. (You can read about the mine discovery on the History section of the web site.) On Monday July 26, the drill started working on the first of 7-10 holes of drilling to follow up on the previous program.

Previous work on the Sib/Lulu and Corey property included airborne geophysical surveys. This included flying over the existing Eskay Creek mine property. However, nobody ever took all of this data, along with drilling results, lithogeochemistry, surface samples and other data, and put it all into a comprehensive geophysical 3D model. We have now done that, prior to starting this seasons drilling. The geologists are interpreting that work to see what in fact, it means for our current quest to find Eskay Two. We need both science and luck to find a huge ore deposit. I believe we have the science.

Re branding this company to its current form has been an interesting task. We believe Eskay is now on sound footing for the future. However, a successful drilling program will enhance interest in your company. I mentioned above, the quest is a large economic ore body. You will note from our web site that we have two neighbors with substantial reserves and resources in excess of 70 million Ounces of Gold, plus massive silver and copper. Check out the web sites of Seabridge gold and Silver Standard Resources for information on their property and status. However, those deposits have lower grade material and require major engineering and costs to put into production. Remember the mention of economic ore bodies. If the two company ore bodies beside Eskay are deemed economic, it will only enhance our land holdings in the future. The goal for Eskay this summer is to enhance our land holdings via our own drilling.

For reference, the Eskay Creek mine was only 2.49 million tons of material at an average grade of over one ounce of gold per ton and about seventy ounces of silver per ton. Think about your company’s task. The Eskay Creek ore body was approximately 600 meters in length, by 200 meters long, by 200 meters high or for the jocks in the crowd, 6 football fields, by 2 football fields by 2 football fields. Now, imagine that small ore body located in 130,000 acres of land with mountains, valleys and glaciers. It is a great challenge, but a massive reward for shareholders if we find Eskay Two. You do this math yourself to come up with some kind of present value that an Eskay Creek mine would be worth today. Use about 4 million ounces of gold, 150 million ounces of silver and then throw in base metals. The Eskay Creek mine was all those metals. Metal prices today are much higher than when the original discovery was made. As well, the whole area is much more sought after for metals. A new power line is being built past the property. I continue believing, the fact this is in Canada, enhances potential value on discovery.

Since becoming CEO on November 12, last fall, I have talked with and heard from many shareholders who have the same belief I share about this company. The fact that this is a high risk play, most investors fully recognize. I say again, if you do not understand the risk/ reward at play here, this is not the type of investment you should have in your account.

I’ve been lucky enough in my career to enjoy a junior penny stock going from where we trade now to over $25. Will that happen again to me, the odds say no, but we will see what the future holds?

I’ve read that VMS deposits occur in clusters in most mining camps of the world. If the Eskay Creek Mine is the only deposit in that Eskay rift, it is an occurrence unlike most others. Granted, it is probably the smallest and richest VMS deposit in the know mining world, but the possibility that it is the only deposit there is an interesting possibility. If this were easy, the other deposits would have been mined out long ago. Believe me, I’ve listened to all the reasons our quest for Eskay Two is foolhardy. That is why we have two of the original Eskay Creek finding geologist involved in our geological advisory board. They don’t believe there is only one deposit there, and I guess, neither do we, the shareholders of Eskay Mining Corp. (Reread the History section of the web site again.)

On a final note, we welcome a new director to our Board. Doug Chalmers has been a very successful CEO/Manager building his own engineering/construction company from scratch in 1973 to over 550 employees prior to selling out to a major private company involved in all facets of construction in NA. They employ over 12,000 and Doug is still actively involved with that team. Although, the majority of Doug’s work was in the petro chemical business, a lot of the same principles apply for the resource industry. We welcome his business leadership skills and acumen to our business.

In the past, I’ve mentioned, your firm is running with limited staff to answer shareholder inquiries of a minor nature. To that end, it is my desire to immensely improve our communication ability via our web site. Enhancements to that are in the works. To date, our focus has been raising money and planning the exploration program. In that regard we have had great success.

We will keep you posted about our drilling and exploration programs as they unfold. Keep in mind, there is a long lag between drilling and receiving results which may be published in due course. Naturally, we are all interested in these results.


Mac Balkam, CEO
Eskay Mining Corp.