Item 405 of Regulation S-B contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB o.

 

PART I		Page
Item 1.	Description of Business
Item 2.	Description of Properties
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
PART II
Item 5.	Market for Common Equity and Related Shareholder Matters
Item 6.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7.	Financial Statements
Item 8.	Disagreements with Accountants on Accounting and Financial Disclosure
Item 8A(T).	Controls and Procedures
Item 8B.	Other Information
PART III
Item 9.	Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
Item 10.	Executive Compensation
Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 12.	Certain Relationships and Related Transactions
Item 13.	Exhibits
Item 14.	Principal Accountant Fees and Services
Signatures

PART I

ITEM 1. BUSINESS

OVERVIEW

Wits Basin Precious Minerals Inc. (with its subsidiaries “we,” “us,” “our,” “Wits Basin” or the “Company”) is a minerals exploration and development company based in Minneapolis, Minnesota. As of December 31, 2007, we hold interests in mineral exploration projects in South Africa, Colorado and Mexico.

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We hold a 35 percent equity interest in Kwagga Gold (Barbados) Limited (“Kwagga Barbados”), which, through its wholly owned subsidiary Kwagga Gold (Proprietary) Limited, holds mineral exploration rights in South Africa. This project is referred to as the “FSC Project” and is located adjacent to the historic Witwatersrand Basin. The last completed drillhole on the FSC project occurred in 2005. On December 12, 2007, we entered into an agreement with AfriOre International (Barbados) Limited (“AfriOre”), the holder of the other 65 percent of Kwagga Barbados, whereby we may acquire all of AfriOre’s interest in Kwagga Barbados. See the “Our Exploration Projects” section that follows for more detail as to the FSC Project, including a discussion regarding a letter of intent we have entered into with respect to our rights to acquire the 65 percent interest in Kwagga Barbados held by AfriOre.

 

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On September 20, 2006, we executed a formal asset purchase agreement relating to the purchase of assets of the Hunter Gold Mining Corporation, a corporation incorporated under the laws of British Columbia, Canada, which assets include the Bates-Hunter Mine, a prior producing gold mine from the 1860’s until the 1930’s located in Central City, Colorado. On January 28, 2008, we executed a fourth amendment to the formal purchase agreement, including an amendment to change the closing date from March 31, 2008 to June 30, 2008. We are continuing with a defined work program, which includes dewatering the existing mine shaft and performing a surface drilling program. See the “Our Exploration Projects” section that follows for detailed information regarding the Bates-Hunter Mine, including the fourth amendment to the formal asset purchase agreement.

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On October 31, 2007, we executed an amendment to the formal joint venture agreement with Journey Resources Corp., a corporation formed under the laws of the Province of British Columbia (“Journey”) and Minerales Jazz S.A. De C.V., a corporation duly organized pursuant to the laws of Mexico and a wholly owned subsidiary of Journey. Pursuant to the terms of the amendment, we own a 50 percent undivided beneficial interest in “located mineral claims” in the property known as the Vianey Mine Concession located in the State of Guerrero, Mexico (“Vianey”). In addition to located mineral claims, our interest includes all surface rights, personal property and permits associated with Vianey and all other claims, leases and interests in minerals acquired within two kilometers of the external perimeter of Vianey.  All work being performed at Vianey is under the supervision of Journey, which mainly consists of cleaning the site for a future work program. See the “Our Exploration Projects” section that follows for detailed information regarding the Vianey Mine, including the amendment to the formal joint venture agreement.

Additionally, we have made approximately $7,000,000 in advance payments on two equity investments to acquire interests in the following mining projects located in the People’s Republic of China (the “PRC”): (i) a nickel mining operation referred to as the Xing Wang Mine and (ii) the iron ore mining properties of Nanjing Sudan Mining Co., Ltd. (which includes Maanshan Zhaoyuan Mining Co. Ltd., and Xiaonanshan Mining Co., Ltd.) and Changjiang Mining Company Limited. Further due diligence and the satisfaction of certain conditions are required before we can proceed with completing the acquisition of either of these PRC projects.

As of December 31, 2007, we do not directly own any mining permits, we possess only a few pieces of equipment and we employ insufficient numbers of personnel necessary to actually explore and/or mine for minerals. Therefore, we are substantially dependent on the third party contractors we engage to perform such operations. As of the date of this Annual Report, we do not claim to have any mineral reserves on our properties.

OUR HISTORY

We were originally incorporated under Colorado law in December 1992 under the name Meteor Industries, Inc. In conjunction with our April 2001 merger with activeIQ Technologies Inc., we reincorporated under Minnesota law and changed our name to Active IQ Technologies, Inc. In June 2003, following our transaction to acquire the rights to the FSC Project, we changed our name to Wits Basin Precious Minerals Inc., in order to further associate our corporate name with our new business model.

Until March 14, 2003, we provided industry-specific solutions for managing, sharing and collaborating on business information on the Internet through our Hosted Solutions Business and until April 30, 2003, we provided accounting software through our Accounting Software Business. We sold substantially all of the assets relating to our Hosted Solutions and Accounting Software Businesses as of such dates and as a result, we became an exploratory stage company effective May 1, 2003. As of the date of this Annual Report, we have only one operating segment, that of minerals exploration, and we will continue reporting as an exploration stage company until such time as an economic mineral deposit is discovered or we otherwise complete acquisitions or joint ventures with business models that have revenues.

OUR EXPLORATION PROJECTS

KWAGGA GOLD (BARBADOS) LIMITED and the FSC PROJECT

Overview

On June 4, 2003, Hawk Uranium Inc., (f/k/a Hawk Precious Minerals Inc.) a corporation formed under the laws of the Providence of Ontario, Canada (“Hawk”), AfriOre International (Barbados) Limited, a corporation formed under the laws of Barbados (“AfriOre”), and AfriOre’s wholly owned subsidiary, Kwagga Gold (Proprietary) Limited, a corporation formed under the laws of the Republic of South Africa (“Kwagga (Proprietary)”), entered into a Heads of Agreement whereby Hawk could earn an interest in exploration rights in certain lands located in the region adjacent to the main Witwatersrand Basin in the Republic of South Africa, referred to as the “FSC Project.” The Heads of Agreement required a total investment of $3,500,000 from Hawk to acquire a 50 percent equity ownership of Kwagga (Proprietary).

On June 26, 2003, we acquired Hawk’s interest and rights to the Heads of Agreement. On August 27, 2004, we entered into a new shareholders agreement, as amended August 30, 2004, with AfriOre and its wholly owned subsidiary, Kwagga Gold (Barbados) Limited, a corporation formed under the laws of Barbados (“Kwagga (Barbados)”). The new shareholders agreement superseded the Heads of Agreement. Kwagga (Barbados) is the parent and holding company of Kwagga (Proprietary). By September 2004, we had invested an aggregate of $2.1 million and became a 35 percent minority shareholder of Kwagga Barbados. The $2.1 million had been expended in the drilling of two holes, completed by August 2005.

On December 12, 2007, we entered into a new agreement, the Sale of Shares Agreement with AfriOre and Kwagga (Barbados), which specifies terms and conditions by which we may acquire the remaining 65 percent equity interest of Kwagga (Barbados). In order for us to acquire the remaining 65 percent interest, all of the following must occur: (1) on or before June 14, 2008 (or such extended date as agreed to by the parties), South Africa’s Minister of Minerals and Energy, who oversees the Department of Minerals and Energy (the “DME”), must consent in writing to the change in the controlling interest in Kwagga (Proprietary) as per South African law; (2) we must incur certain exploration expenditures in the aggregate amount of at least $1.4 million (this with the initial $2.1 million investment attains the $3.5 million investment necessary to acquire a 50 percent ownership level) as required in the shareholders agreement; and (3) we must pay to AfriOre an amount equal to $1.162 million on the earlier of (a) December 31, 2008 or (b) within three months following the final date of the completion of the required $1.4 million exploration expenditures. The closing of this transaction will occur three business days following the receipt of the DME consent, at which time we will acquire the remaining 65 percent interest and simultaneously grant to AfriOre a security interest in that 65 percent interest as collateral. Such security interest will not be released by AfriOre until such time as we incur the exploration expenditures and make the $1.162 million payment. The August 27, 2004 shareholders agreement remains in full force and effect until receipt of the DME consent, but upon receipt of the DME consent, such shareholders agreement will be superseded by the Sale of Shares Agreement. In the event the parties do not obtain the DME consent, the Sale of Shares Agreement will lapse and the terms and conditions set forth therein will be null and void and of no further force or effect.

As additional consideration for entering into the Sale of Shares Agreement, AfriOre will be entitled to a two percent gross royalty on all sales of gold and any other minerals by the Company relating to the FSC project. We may buy back one percent of the two percent gross royalty for a one-time cash payment of $2 million upon delivery of a bankable feasibility study.

 

In connection with the Sale of Shares Agreement, we entered in an operating agreement with Kwagga (Proprietary), whereby we will serve as the manager of exploration, evaluation, development and mining of those mineral properties to which Kwagga (Proprietary) holds rights (the properties and valid prospecting permits cover approximately 230,000 acres). Under that operating agreement, we will be compensated for our management services according to the accounting procedure set forth in the operating agreement. We may terminate the operating agreement for any reason upon three months’ notice to Kwagga (Proprietary).

On March 3, 2008, we entered into a letter of intent with Communications DVR Inc. (“DVR”), a capital pool company listed on the TSX Venture Exchange (TSXV: DVR.P). Under the terms of the letter of intent, it is anticipated that DVR will acquire and assume all of our rights and obligations under the Sale of Shares Agreement in exchange for 22 million common shares of DVR (the “DVR Transaction”). DVR currently has 3,765,000 common shares issued and outstanding and at the request of DVR, trading of DVR common shares has been halted and will remain so until receipt by the TSX Venture Exchange of all requisite documentation in connection with this proposed DVR Transaction and satisfaction of related conditions.

The closing of the proposed DVR Transaction is subject to a number of other conditions including, but not limited to the following: (1) obtaining all necessary regulatory approvals, including the approval by the TSX Venture Exchange of the DVR Transaction, which is intended to qualify as DVR's qualifying transaction for purposes of the rules of the TSX Venture Exchange and as a result of which DVR would cease to be a capital pool company and would become a regularly-listed company on the TSX Venture Exchange, (2) DME and other necessary third party consents, (3) the negotiation and execution of definitive agreements, (4) board of director approval, (5) the completion of necessary financing and (6) other conditions typical of a transaction of this nature.

Upon completion of the DVR Transaction, the parties anticipate that DVR will have approximately 34,590,000 common shares issued and outstanding on a non-diluted basis, and its officers are expected to include H. Vance White, as Chief Executive Officer, and Dr. Clyde Smith, as President. We also anticipate that Mr. White, Dr. Smith and Mr. King will serve on the board of DVR.

Creating a vehicle that is focused on the 65 percent interest in the FSC project is part of an overall strategy to allow management to be single minded as well as having access to one of the largest mining capital markets in the world.

Previous Exploration Efforts

The geological model was developed by AfriOre, affiliates of AfriOre and academic geologists from Witwatersrand University.

 

In October 2003, AfriOre commissioned the first drillhole, which was completed on June 8, 2004. This drillhole, BH47, was drilled in the western structural block to a depth of 2,984 meters (approximately 9,800 feet) and intersected a well developed succession of lower Proterozoic rocks before it was terminated in a zone of shearing. Although BH47 was not successful in intersecting any gold bearing mineralization reefs to the depths drilled, it did confirm the existence of the overlying cover rock stratigraphies, similar to those in the main Witwatersrand Basin, thereby confirming the initial geological model.

In October 2004, the South African Department of Minerals and Energy granted permission to prospect on newly acquired areas of the FSC Project, which had been defined as drillhole BH48. That second drillhole, BH48 (which was completed in August 2005) was drilled to a depth of 2,559 meters (approximately 8,400 feet) and intersected over 600 meters of quartzites, below cover rocks which included a relatively thin succession of Transvaal Supergroup sedimentary rocks (160 meters) and Ventersdorp Supergroup lavas (132 meters) below the Karoo Supergroup rocks. The quartzites have been positively identified as Witwatersrand rocks, both through stratigraphic correlation and age dating analysis. Although the age dating determinations indicated an age of the quartzites in accordance with that of the Witwatersrand Supergroup, expert consultants engaged by AfriOre correlated the quartzites with the West Rand Group of the Witwatersrand Supergroup. Also identified in BH48 were a number of bands of pyrite mineralization which, while returning assays results with negligible amounts of gold, nevertheless were consistent with similar features encountered throughout the rocks in the main Witwatersrand Basin.

Our Exploration Plans

The FSC project is significant because for the first time all the historical data previously held by independent sources has been acquired and interpreted together. Part of the data that AfriOre has acquired and compiled from independent sources includes:

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Government aeromagnetic and gravimetric data.

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66 regional drillholes of which 37 define the FSC basin and 7 intersected Witwatersrand rocks within the FSC basin.

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736 line kilometers of seismic data.

Six potential sites for proposed future drilling have been identified for consideration. It has been recommended that additional seismic and drillhole information be purchased from a third party to enhance the interpretation in the exploration area prior to siting the drillholes.

A preliminary estimate of costs associated with the next phase of exploration has been calculated and includes the purchase of data from other drilling companies and the drilling of a single drillhole with associated costs. The actual costs will be dependent on the depth of drilling, with a 2,000 meter hole estimated at $622,000 and a 3,200 meter hole estimated at $957,790 based on estimates made in March 2007. We anticipate that costs will have generally increased since the estimate.

It is anticipated that the next round of exploration funding will be financed upon completion of the proposed DVR Transaction. In the event that the DVR Transaction is not closed, alternate sources of financing will be sought.

BATES-HUNTER MINE

Overview

On January 21, 2005, we acquired an option to purchase all of the outstanding capital stock of the Hunter Gold Mining Corporation (a corporation incorporated under the laws of British Columbia, Canada) including its wholly owned subsidiary Hunter Gold Mining, Inc., (a Colorado corporation). On July 21, 2006, we executed a stock purchase agreement with the parties to the option intended to supersede the option agreement. On September 20, 2006, we executed a formal asset purchase agreement (as amended on October 31, 2006, March 1, 2007 and May 31, 2007) to purchase the Bates-Hunter Mine on different economic terms than previously agreed upon in the stock purchase agreement or option. The formal asset purchase agreement is by and among the Company and Hunter Gold Mining Corporation, Hunter Gold Mining Inc., Central City Consolidated Mining Corp., a Colorado corporation, and George Otten, a resident of Colorado (collectively the “Sellers”) for the purchase of the following assets: the Bates-Hunter Mine (this was a prior producing gold mine when operations ceased during the 1930’s), a water treatment plant, mining properties, claims, permits and all ancillary equipment.

On January 28, 2008, the parties to the formal asset purchase agreement entered into a fourth amendment relating to the modification or amendment of certain terms, including without limitation: (i) the incorporation of an acknowledgement of the parties that we have incurred approximately $2,500,000 in due diligence costs; (ii) an amendment to change the closing date of the formal asset purchase agreement from March 31, 2008 to June 30, 2008 (and to change the date upon which either party may terminate the agreement in the event a closing has not occurred as of such date to June 30, 2008); and (iii) an amendment to the purchase price whereby all payments of principal and interest under such note can be deferred until the earlier of production on the property or January 2010.

At a formal closing, we shall deliver to the Sellers (i) a note payable to Sellers in the original principal amount of $6,750,000 Canadian Dollars, (ii) a deed of trust with George Otten as trustee for the Sellers securing the note payable, and (iii) 3,620,000 shares of our unregistered and restricted $.01 par value common stock. Furthermore, we would still be required to provide the following additional compensation: (i) a warrant to purchase up to 100,000 shares of our common stock, at an exercise price equal to the average prior 30-day sale price of our common stock; (ii) a two percent net smelter return royalty on all future production, with no limit; (iii) a one percent net smelter return royalty (up to a maximum payment of $1,500,000); and (iv) a fee of $300,000, payable in cash or common stock at our election.

At December 31, 2007, Kenneth Swaisland, who previously assigned us certain rights relating to the Bates-Hunter property, held the right to receive a warrant to purchase up to 1 million shares of our common stock at an exercise price equal to the average prior 30-day sale price of our common stock, to be granted upon closing of our purchase of the Bates-Hunter mine. In January 2008, we entered into an agreement with Mr. Swaisland to that allowed him the right-to-purchase 125,000 shares of our unregistered common stock at $0.20 per share and provided for the issuance of a new three-year warrant to purchase up to 875,000 shares of our common stock at $0.20 per share in exchange for the termination of his right to receive the 1 million share warrant. In February 2008, Mr. Swaisland purchased the 125,000 shares for $25,000 and we finalized the agreement by issuing a three-year warrant to purchase 875,000 shares with an exercise price of $0.20 per share.

The Bates-Hunter Mine is located about 35 miles west of Denver, Colorado and is located within the city limits of Central City while the mill lies about one mile to the north in Black Hawk. The Central City mining district lies on the east slope of the Front Range where elevations range from 8,000 in the east to 9,750 feet in the west. Local topography consists of gently rolling hills with local relief of as much as 1,000 feet.

The mine site is located in the middle of a residential district within the city limits of Central City and is generally zoned for mining or industrial use. The Bates-Hunter shaft is equipped with a two-compartment, 85 foot tall steel headframe and a single drum hoist using a one inch diameter rope to hoist two ton skips from at least 1,000 feet deep. Permit M-1990-41 covers the Bates-Hunter Mine and the Golden Gilpin Mill and is in good standing. Colorado permitting regulations allow for transfer of ownership or relocating the mine within 90 to 120 days based on technical considerations only. A state-of-the-art water treatment plant has been constructed adjacent to the mine headframe. This is a significant asset given the mine site location and environmental concerns. Substantial water rights are attached to the mine permits. There is ample water to meet both present and future project needs. The Water Discharge Permit #0043168 was in good standing until July 31, 2007, and currently is under renewal. Transfer of permit ownership requires an amendment showing the new owner and takes about 30 days to process.

Geology

The regional geology of the Central City district is not “simple” but the economic geology is classically simple. The Precambrian granites and gniesses in the area were intensely fractured during a faulting event resulting in the emplacement of many closely spaced and roughly parallel veins. The veins are the result of fracture filling by fluids that impregnated a portion of the surrounding gneisses and granites with lower grade gold concentrations “milling ore” and usually leaving a high grade “pay streak” of high grade gold sulphides within a quartz vein in the fracture. There are two veins systems present, one striking east-west and the other striking sub parallel to the more predominant east-west set. These veins hosted almost all of the gold in the camp. The veins vary from 2 to 20 feet in width and dip nearly vertical. Where two veins intersect, the intersection usually widens considerably and the grade also increases, sometimes to bonanza grades. In the Timmins camp, this same feature was described as a “blow out” and resulted in similar grade and thickness increases. The Bates vein in the area of the Bates-Hunter has been reported to have both sets of veins and extremely rich “ore” where the two veins intersected. These veins persist to depth and consist of gold rich sulphides that include some significant base metal credits for copper and silver.

Previous Exploration Efforts

The following is based on the information from a report titled “Exploration and Development Plan for the Bates-Hunter Project,” prepared by Glenn R. O’Gorman, P. Eng., dated March 1, 2004.

Lode gold was first discovered in Colorado in 1859 by John H. Gregory. The first veins discovered were the Gregory and the Bates. This discovery started a gold rush into the area with thousands of people trying to stake their claims. The Central City mining district is the most important mining district in the Front Range mineral belt. Since 1859, more than 4,000,000 ounces of gold have been mined from this district. Over 25% of this production has come from the area immediately surrounding the Bates-Hunter Project. Although the Bates vein was one of the richest and most productive in the early history of the area, it was never consolidated and mined to any great depth.

The majority of production on the claims occurred during the period prior to 1900. Technology at that time was very primitive in comparison to today's standards. Hand steel and hand tramming was the technology of the day. The above limitations coupled with limited claim sizes generally restricted mining to the top few hundred feet on any one claim.

During the early 1900’s cyanidation and flotation recovery technologies were developed along with better hoists and compressed air operated drills. Consolidation of land was a problem. Production rates were still limited due to the lack of mechanized mucking and tramming equipment. Issues that were major obstacles prior to the 1900’s and 1930’s are easily overcome with modern technology. 

Colorado legislated their own peculiar mining problem by limiting claim sizes to 500 feet in length by 50 feet wide and incorporated the Apex Law into the system as well. A typical claim was 100 to 200 feet long in the early days. This resulted in making it extremely difficult for any one owner to consolidate a large group of claims and benefit from economies of scale. The W.W.II Production Limiting Order # 208 effectively shut down gold mining in the area and throughout Colorado and the United States in mid 1942.

Historical production records indicate that at least 350,000 ounces of gold were recovered from about half of the Bates Vein alone to shallow depths averaging about 500 feet below surface.

GSR Goldsearch Resources drilled two reverse circulation holes on the property in 1990. The first hole did not intersect the Bates Vein. However, the second drilled beneath the Bates-Hunter shaft bottom intersected the Bates Vein at about 900 feet below surface. The drill cuttings graded 0.48 oz. Au/ton over 10 feet. This drillhole intersected three additional veins as well with significant gold assays.

In 2006 and 2007, we completed a total of 7,739 feet of diamond drilling in seven holes despite the extreme winter conditions in the Colorado mountains and difficulties with the drilling contractor’s proficiency, both which significantly slowed the surface drilling progress. Several narrow intervals of potential ore grade gold values were intersected. Three-dimensional computer modeling of the data from the drillholes has allowed the identification of additional drill targets for 2008. Mine de-watering has recently reached a depth of approximately 410 feet below the mine shaft collar.

Our Exploration Plans

We have conducted a detailed and comprehensive exploration program on the Bates-Hunter property consisting of the following: de-watering the shaft; underground and surface geologic mapping, sampling, and assaying; a detailed surface survey of claims and outcropping veins; computer modeling with state-of the three-dimensional art software; surface drilling of deep holes to test selected targets below the 750 foot depth of previous mining. Once de-watering has exposed a suitable level, underground diamond drilling of targets in veins adjacent to the Bates Vein will be undertaken.

We have engaged a new drilling contractor for the drilling of BH08-09, which is now being drilled toward what we perceive as a quality target and it is expected that this hole will be completed in April 2008.

VIANEY MINE CONCESSION

On June 28, 2006, we entered into an option agreement with Journey Resources Corporation, a corporation duly organized pursuant to the laws of the Providence of British Columbia, and its wholly-owned subsidiary Minerales Jazz S.A. de C.V., a corporation duly organized pursuant to the laws of Mexico (collectively, as “Journey”), to acquire an undivided 50 percent interest in certain mining claims comprising the Vianey Mine concession (“Vianey”) located in Guerrero State, Mexico. On December 18, 2006, we entered into a formal joint venture agreement with Journey and through the issuance of 500,000 shares of our common stock and a $500,000 work program expenditure payment, we acquired a 25 percent interest in Vianey.

In January 2007, we paid $100,000 of an additional $500,000 required for work program expenditures to Journey and issued an additional 500,000 shares of our common stock as partial payment to acquire an additional 25 percent interest in Vianey. On October 31, 2007, we executed an amendment to the formal joint venture agreement with Journey, whereby we issued 1,600,000 shares of our unregistered common stock to Journey in lieu of the final $400,000 work program expenditure payment due under the amendment. As a result, we now hold a 50 percent interest in Vianey.

The Vianey Mine is located in the north-central part of the state of Guerrero, which lies in the southern part of Mexico. It is about 250 kilometers by road south of Mexico City and 160 kilometers north of Acapulco. The mine is situated within the Morelos National Mining Reserve on the southwestern flank of the southern Sierra Madre Occidental province that extends north-northwest to the border between Sonora and Arizona, and east-southeast to Oaxaca State. The region is characterized by moderately steep rolling hills with alternating valleys of gentle gradient. Elevations in the area range from 450 to 850m above sea level. A major drainage system, the Balsas River, flows generally east to west through the region, about 2.5 km south of the site. The concession constitutes 44 contiguous hectares, centered on UTM coordinates 431,330m E, 1,987,020m N (WGS 84, Zone 14), or -99.6485 degrees E, 17.9704 degrees N.

Road access is good via highway 95, then 15 kilometers by gravel road. The concession exists in the municipality of Cocula, 1.6 km southeast of the small town of Atzcala, where labor suitable for exploration and limited mining can be found. Supplies and equipment are available in the towns of Mezcala and Chilpancingo, the capital of Guerrero, located on the main highway approximately 8 and 48 km south of the property respectively. A major power line passes near the property and electrical power is available at the mine.

 

In Mexico, all minerals are held in trust for the people of Mexico by the national government. Surface rights can be held by the government, local communities (“ejidos”), or privately held by companies or individuals. Under the mining regulations, there are no provisions for patent to mineral lands in Mexico. The granting of permission for an individual, a cooperative, or a commercial company to acquire rights to explore for, and ultimately for extracting minerals from the ground, is governed by legislation administrated by the government of Mexico.

The Mexico mining code of 1990 was revised in June 1992, and its current enabling regulations were issued by the President of Mexico in 1999. The government, under the mining code, can grant to individuals and Mexican corporations mining concessions with the right to explore and extract mineral resources.

“Concessions” refer to mining lots, the perimeter and name of which is determined by the applicant, and which are granted on “free” land (“tierra libre”). An exploration concession is valid for a period of six years; an exploitation concession for fifty years. Exploitation concessions can be renewed once for an additional fifty years, if requested before the end of the expiration of the original concession. The concession relating to Vianey consists of 44 hectares held under the exploitation concession (Number 164151, Exp. No. 5929, issued March 5, 1979 and will expire, unless renewed, in 2029) pursuant to the laws of Mexico. Minerales Jazz SA de C.V., (the wholly-owned subsidiary of Journey) exercised a lease with option to purchase the property held between Minera LMX SA de C.V., and Minera Chilpancingo SA de C.V., and the owner of the concession. The property is owned 100 percent by Minerales Jazz SA de C.V., with no royalty, back-in rights, or other encumbrance.

The main obligations which arise from a mining concession, and which must be kept current to avoid its cancellation, are (i) the performance of assessment work, (ii) the payment of mining taxes (technically called “duties”), and (iii) compliance with environmental laws.

The Mining Law (in Mexico) establishes that minimum amounts of funds for assessment work be spent in performing exploration work (in the case of exploration concessions) or exploration and/or exploitation work (in the case of exploitation concessions); in the latter case the sales of minerals from the mine may be substituted in lieu of the equivalent amount of minimum expenditures. A report must be filed in May of each year regarding the work done during the previous calendar year.

Mining duties must be paid in advance in January and July of each year, and they are based on the type of concession, on the surface area of the concession and the number of years that have elapsed since the date of issue. Environmental laws require the filing and approval of an environmental impact statement for all exploitation work, and for exploration work that does not fall within the threshold of a standard issued by the federal government for mining exploration.

Potential environmental impacts and social impacts to communities affected by future land disturbance and mining activities are reviewed by the environmental protection sector of the government. There are no known or observed environmental liabilities respecting the Vianey or the land adjacent to it.

Geology

The property is located in the Sierra del Sur Metallogenic Province in the Guerrero Gold and Massive Sulfide Belts. This province is characterized by Cretaceous sedimentary and volcanic rocks intruded by Lower Tertiary intermediate composition stocks. It hosts intrusive associated gold-copper-silver deposits. To the west, the massive sulfide belt hosts several silver-lead-zinc and copper deposits.

The Vianey is located in the Morelos-Guerrero Basin of Cretaceous age, mostly composed of a folded and faulted limestone sequence up to 2500 meters thick, intruded by granodiorite and monzonite plutons, which are responsible for development of silver-lead-zinc mineralization in veins, skarn and breccia bodies. Various types of deposits occur in this geological context, i.e. mesothermal lenses, veins and breccias (Vianey Mine), iron- and gold-bearing skarns, disseminated iron-gold-copper or hydrothermal veins and epithermal gold-mercury deposits.

The Vianey property is underlain by limestones, limestone breccias, calcareous and carbonaceous siltstones, and argillites intruded locally by felsic dikes and plugs with affiliated skarn. The local stratigraphy consists of limestone underlain by limy siltstone of undetermined thickness, but known to exceed 2500 meters thick. These rocks are part of regionally extensive shallow marine sedimentary sequence that form an elliptical exposure of Cretaceous carbonate lithologies known as the Morelos-Guerrero Basin.

The Vianey Mine carbonate sequence is intruded by granodiorite and monzonite plutons, dikes, sills and irregular plugs. These intrusive masses are intimately associated with mineral deposits throughout the region. The carbonate stratigraphy in the Vianey Mine region is broadly folded and domed. Major folds, with amplitudes of fifty- to hundreds of meters are common. Drag folds and distortions of the bedded rocks are common in the underground exposures at the property.

Various types of mineralization occur as a result of the interplay between stratigraphy, structure, and proximity to intrusive centers in the district. The different types of deposits known to occur are as follows:

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Lenses, veins, mantos or breccias containing silver and poly-metallic Pb-Zn-Cu (Vianey deposit)

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Skarn zones and replacement concentrations or iron and gold (Nukay deposit)

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Disseminated and hydrothermal vein type Fe-Au-Cu (La Subsida deposit)

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Epithermal and hot springs deposits of mercury (Hg) and gold (Brasil and Laguna deposits)

Mineralization at the Vianey Mine includes veins, breccias, lens and mantos of silver - and poly-metallic (Pb-Zn) mineralization with local concentrations of gold and copper. The veins and breccia zones predominate in apparent importance. Most of the veins are localized along NW-SE trending structures and E-W structures; the lenses occur in fault zones and as sulfide concentrations with calcite, gypsum and quartz between some bedding planes.

Previous Exploration Efforts

The Vianey Mine has been operated intermittently on a small-scale basis since the 1400’s. More recently, the mine is said to have been in almost continuous production since about 1976 by Compania Minera de Chilpancingo S.A., and operated until 1996 on a small scale with short breaks, extracting 200 to 300 tonnes per month.

Underground workings put in by Compania Minera de Chilpancingo S.A., and its predecessors, amounts to seven levels, several winzes, two shafts and numerous stopes. The portal is approximately 540 meters above sea level, which penetrates into the mountain about 100 meters in an easterly direction.

Minera LMX SA de C.V., a former subsidiary of LMX Resources Ltd., took over the Vianey operations in 1996 and started various exploration and development works. The first phase of exploration was conducted in the mine by P.H. Consultants Ltd of Val d’Or, Quebec, in order to determine what resources were still contained in the old workings. A total of 252 meters of vertical fan drilling was completed from drill station one, 276 channel samples were taken, and 433 additional samples were obtained. All samples were analyzed for 38 minerals by a combination of fire assay, ICP, and aqua regia-AA methods by Bondar Clegg Laboratories.

A second phase of exploration completed in November 1996 accomplished 2,173 meters of underground core drilling from drill stations one through six. The second phase drilling further delineated the mineralized zones identified by the first program and resulted in the partial definition of a new breccia chimney called the Twilight Zone.

In May 1997, Minera LMX started a third phase to verify and expand previous findings and to mine accessible reserves for direct shipping. After stockpiling about 940 tonnes of material from underground development work, the company abruptly closed the operation and the third drilling program was interrupted shortly after it was initiated.

The property was sold to the Chief Geologist of Minera LMX, who later defaulted on a property payment and a legal battle ensued. After several years of inactivity, the legal matters were settled and Minerales Jazz SA de CV acquired 100 percent interest in the property, free of royalties and encumbrances, with a cash payment in 2004, but did not conduct any physical exploration of the property.

As reported in the Blakestad Report, there are many issues related to the resource/reserve calculations reported from these prior drilling phases which may not meet the requirements of National Instrument 43-101. The calculations, however, were performed by a qualified person (P. J. Hawley) with intimate experience with the property and its mineralization. The results of exploration to date and the evaluations serve to form a basis for recommending aggressive exploration of the Vianey Mine.

A total of 12 diamond drillholes were drilled in during 2006-2007. In some cases these holes were incorrectly located and in some cases they were terminated prior to intersecting target zones. The target zones were projected to depth from the lowest levels of the mine at -75 meters below surface.

Our Exploration Plans

An abundance of data has been generated on the Vianey Mine over the years. All available data is now being compiled and entered into a three-dimensional model prior to conducting the next phase of exploration work on the project. This model includes geologic and assay data plotted on underground survey and drillhole information.

Journey is the operator of the Vianey project. Journey’s consulting geologist and Qualified Person is now Philip van Angeren. The previous consultant on the project, Rodney Blakestad, recommended a 2006 surface drill program to test the down-dip continuity of the principal veins; technical and drilling difficulties resulted in the fact that none of the 12 holes drilled reached sufficient depths to test the veins at deeper levels. We have recently requested that Journey proceed to (1) acquire significant additional claims surrounding the current property, (2) acquire available underground survey data, (3) acquire available additional underground geologic and assay data developed during previous programs, (4) enter all available underground data into a suitable computer software program, (5) complete underground industry-standard channel sampling to confirm data contained in Hawley’s resource and reserve calculation report. Following completion of this work, we look forward to planning the next stage of exploration or development on the Vianey project.

TRANSACTIONS IN HONG KONG AND THE PEOPLE’S REPUBLIC OF CHINA

China Global Mining Resources Limited

In November and December 2006, SSC Mandarin Group Limited, a British Virgin Islands corporation with a principal place of business in Hong Kong (“SSC Mandarin Group”), introduced us to various potential mining opportunities located in the People’s Republic of China (the “PRC”). From January through June 2007, we made loans in the aggregate amount of approximately $7.8 million to SSC Mandarin Group, which were used by SSC Mandarin Group to acquire interests in certain mining properties (which are described below) located in the PRC through SSC Mandarin Group’s wholly owned subsidiary, China Global Mining Resources Limited, a British Virgin Islands corporation (“CGMR”). The loans to CGMR were made out of the proceeds from the China Gold, LLC convertible promissory notes (see Note 9 - Convertible Notes Payable in the financial statements). In partial consideration for the loans, we received two promissory notes of CGMR in the respective amounts of $2 and $5 million. CGMR’s obligations under the notes were secured by its rights under various acquisition and other agreements, including a supply agreement relating to forty tonnes of nickel, that CGMR had entered into relating to the mining opportunities (as discussed below). Additionally, an aggregate of $500,000 of the amounts loaned to SSC Mandarin Group were used to acquire interests in two entities from SSC Mandarin Group, SSC Mandarin Africa ($400,000) and SSC-Sino Gold ($100,000), which are described below. The remaining $300,000 was expensed for due diligence activities relating to the acquisition of mining interests. Norman D. Lowenthal, a director of ours, serves as Vice Chairman of SSC-Sino Gold and as a director of SSC Mandarin Africa, and until June 2007 served as Chairman of SSC Mandarin Financial, all of which are affiliates of SSC Mandarin Group.

On March 28, 2007, we entered into separate Sale of Shares and Claims Agreements with SSC Mandarin Group whereby we acquired CGMR and a Hong Kong entity of the same name, China Global Mining Resources Limited. The Hong Kong entity does not hold any assets, but was formed for the right to use the corporate name in Hong Kong. Due to technical deficiencies in the original Sale of Shares and Claims Agreements, we and SSC Mandarin Group re-executed the agreements on July 27, 2007 to resolve the deficiencies in the original agreements, and on August 1, 2007 paid the nominal purchase price of $10,000 Hong Kong dollars (US$1,317) for each corporation as required under the Sale of Shares and Claims Agreements. Effective August 1, 2007, we reclassified the $7 million in promissory notes received from CGMR as “Advance payments on equity investments” in our financial statements to reflect the status of CGMR as our wholly owned subsidiary.

At the time of the acquisition of CGMR, it held rights to acquire interests in a nickel and various iron ore mining properties located in the PRC. As of December 31, 2007, we hold only the right or option to acquire and do not hold title to any of these properties, therefore, we have recorded these as advanced payments until such time as we complete a transaction. In the event we determine that such a transaction will not occur, we will seek to collect our advance payments or consider available alternatives.

Nickel – Shanxi Hua Ze Nickel Smelting Co.

CGMR is a party to that certain Joint Venture Agreement with Shanxi Hua Ze Nickel Smelting Co. (“Shanxi Hua Ze”) dated April 14, 2007, as supplemented on June 6, 2007, pursuant to which the parties contemplate a joint venture relating to the Xing Wang Mine, a nickel mine located in the Qinghai province of the PRC. Pursuant to the agreement, CGMR would receive a 25% interest in the joint venture in consideration of its contribution of approximately 425 million Chinese Renminbi, or RMB, (approximately US$52 million) to the joint venture, such contribution to be used for the development and improvement of the mining property and production facility, the repayment of loans and settlement of other outstanding payables and other purposes. Shanxi Hua Ze would receive 75% of the joint venture in consideration of its contribution of the mine and related assets. Upon the acquisition by the joint venture of additional land with an additional 200,000 tonnes of nickel, CGMR would be required to contribute an additional 155 million RMB (approximately US$19 million). In consideration of this additional contribution, CGMR would receive an additional 15% of the equity interest in the joint venture, resulting in a holding of 40% of the joint venture at such time. CGMR further has the right to acquire an additional 40% interest in the joint venture from Shanxi Hua Ze if it contributes an additional 580 million RMB (approximately US$71 million) on or before June 15, 2008. To date, the parties have been unable to meet the agreed upon timetables for contributions due to the inability to obtain the necessary permits for the joint venture. We are currently exploring our options with respect to this project.

As a condition to the Joint Venture Agreement, CGMR also entered into a Supply Contract with Shanxi Hua Ze to purchase forty tonnes of electrolytic nickel (greater than 99% grade) for US$2 million, whic