AEX Gold — High-grade gold in Greenland

AEX Gold Inc. is an exploration company focused on the development of gold projects in Greenland. AEX holds a 100% interest in the Nalunaq, Vagar and Tartoq properties through its wholly-owned Greenlandic subsidiary Nalunaq A/S. The company successfully completed an IPO on the TSX Venture Exchange in July 2017 and is listed under the symbol “AEX”. In conjunction with the IPO, AEX placed 13.6m shares to raise gross proceeds of C$6.8m, with the funds used for exploration. In May 2018, the company raised a further C$2.5m to fund the 2018 programme.

The company’s focus is on the advanced-stage Nalunaq property where AEX holds an exploitation licence (valid until 2033) which includes the previously operating Nalunaq Gold Mine which closed in 2013. AEX is also conducting early-stage exploration on the nearby Vagar and Tartoq licence areas. The company’s objective is to re-start gold production at Nalunaq and take advantage of the significant mine infrastructure already in place and to pursue ways to improve on the previous mining operation. AEX plans to commence a PEA in late 2018, subject to the latest drilling results.

Nalunaq - an advanced property (22km2) covered by an Exploitation Licence (valid until April 2033) which hosts the former operating Nalunaq Gold Mine. An Exploitation Licence confers the exclusive right to undertake exploration and exploitation, subject to various approvals.

Vagar - 420km2 Exploration Licence, expiry December 2018 with the ability to apply for three further 3-year extensions providing up to 9-years in total.

Tartoq - 78km2 Exploration Licence, expiry Dec 2019, with the ability to extend the term for an additional 5-year period and to apply for four further 3-year extensions up to 12 years in total.

Nalunaq is an advanced exploration project and AEX’s main focus, with the licence area encompassing the previously operating Nalunaq gold mine, which hosts a NI 43-101 resource estimate. AEX’s strategy is to identify gold mineralisation and delineate new additional resources adjacent to and beyond the former mine area. Work by AEX so far has focused on gathering data and increasing understanding of the Nalunaq deposit and tracing the continuity of the Main Vein “MV” structure, which hosts the gold mineralisation in the area.

The Nalunaq deposit project lies within the ‘Psammite Zone’ in south Greenland, host to the Nanortalik Gold Belt, postulated to be a continuation of the Swedish Gold Line. The geology of the Nalunaq mine area is dominated by fine- to medium-grained tholeiitic basalt flows, which have been metamorphosed to amphibolite facies, forming part of a nappe complex that has been thrust over metasediments.

Gold mineralisation at Nalunaq is classified as high-grade, narrow-vein orogenic gold lode type and is hosted in a feature known as the MV. The vein varies in thickness from 0.1m to 2m but significant continuity has been demonstrated for a strike length of over 1,000m and up and down dip for 2,000m. The key focus of AEX’s exploration programme is to investigate extensions of the MV in the wider licence area.

In 2016, SRK Exploration Services compiled an NI 43-101 compliant mineral resource estimate on behalf of AEX at Nalunaq. The total inferred resource amounts to 446kt at 18.7g/t Au for 263koz contained gold, with the resource calculated at a gold price of US$1,300/oz and a cut-off grade of 5.5g/t Au in the mine area. The resource is split into the area surrounding the current mine layout, and in-situ remnant material comprised of material within the mine that could practically and safely be mined as part of a larger exploration or mining operation. Gold mineralisation is high-grade, but erratic as befitting a vein-type deposit with a high nugget effect. The company believes that the magnitude of the gold resource may have been previously underestimated due to the challenges of resource estimation inherent in high nugget-effect deposits such as this.

Exploration target: in addition to the updated resource estimate, SRK generated an exploration target range of between 80koz and 1.2Moz of gold contained within 1-2Mt grading between 2.5 and 19g/t Au. SRK’s estimate is based on extrapolating data from the mine area across the rest of the known MV structure as well as down-dip below the South Block. This is based on surface diamond drilling and channel and surface samples from 2015–2016. Investigating the potential of this exploration target was a priority of AEX’s initial 2017 exploration programme.

Gold was first discovered at Nalunaq in 1986 and the main quartz-vein was discovered in 1992 by NunaOil prompting further exploration. NunaOil entered into a JV with Mindex in 1997 and a major exploration programme was undertaken in 1998 and 1999 including significant surface drilling and an underground drive. Mindex merged with Crew Development Corporation in 1999 and became the operator, completing a PFS later in 1999. An underground development programme commenced in 2000 (managed by Strathcona), which included 1,902m of lateral development, bulk sampling and a pilot plant operation. The MV has been subject to over 30,000m of surface drilling and 5,572m of underground development.

Two periods of gold production. After a feasibility study in 2002, Crew Gold Corporation commenced mining in 2004. No processing was carried out on site and from 2004 to 2006, ore was transported to a processing plant in Spain. Then from 2006 until 2009, it was shipped to Crew’s Nugget Pond processing plant in Newfoundland. Crew produced a total of 352koz gold from 654kt of processed ore during. Production peaked at c 71koz in 2007. The mine was put on care and maintenance in February 2009, being a non-core asset for Crew.

Angel Mining acquired the mine in 2009 and spent $35m on an underground processing plant, pouring first gold in May 2011 with a target of 24koz pa, although this was never reached due to challenging logistics and production delays as a result of pump and generator failures. Production averaged 600oz per month during Angel Mining’s tenure, below the targeted 2,000oz/m. Due to financial difficulties and the company’s inability to repay loans, Angel Mining went into administration in February 2013 and the mine operated until August 2013. In 2015, Angel Mining concluded a sale agreement and the licence was transferred to Nalunaq A/S. AEX believes there is considerable scope to optimise and improve on the previous mining and processing operation run by Angel Mining (see next page).

The key cogs of AEX’s development strategy are:

AEX’s exploration as part of the 2018 work programme has focused on drilling around the South Block area to update the NI 43-101 resource estimate (Q418). In combination with upgrading the site infrastructure and equipment, this will support AEX’s aim of advancing the project towards commencing a PEA in late 2018. If the current exploration programme indicates that more drilling is required, AEX will undertake a PEA after the next round of drilling. The target resource required to justify development will depend on whether AEX opts for a DSO operation, mobile plant, or full-scale plant. We believe that increasing the resource to >500koz will be key to incentivise capital investment to a full-scale plant.

For the reasons outlined above, AEX views its licence holdings as a district-scale play. Nalunaq is a high-grade gold deposit (average head-grade during Crew’s tenure was 15g/t Au) and AEX believes there is potential to discover additional mineralisation of the same style in the area. AEX has a 1.2Moz exploration target and a two-pronged strategy:

The 420km2 licence that composes the Vagar project is split into three sub-areas proximal to the Nalunaq mine. Vagar covers key areas of the Nanortalik gold belt. The Nalunaq East and Lake 410 areas are close to the Nalunaq Mine licence and contain similar geology. The Niaqornaarsuk licence is geologically different but work by previous companies has identified a number of gold prospects. The Vagar licence was granted in January 2018 and AEX initially plans to conduct desk-based work to evaluate the inherited historic data, which suggest a continuation of the main Nalunaq vein. The licence has not been systematically drilled and AEX believes that existing exploration has only scratched the surface of the area.

The Tartoq project is situated to the northwest of Nalunaq, on the northern edge of the North Atlantic craton and is split into two sub-areas (Interlak and Nuuluk) either side of the Sermiligaarsuk Fjord. Tartoq is an early-stage exploration project covering an area that AEX generally considers to be unexplored, yet the geology resembles the prolific Abitibi Greenstone belt in Canada. The results of the 2017 work programme (next page) suggest the geology is prospective for narrow high-grade mineralisation hosted in quartz veins and sulphide lenses. Exploration was carried out in the area between the 1970s and 1990s and historical sampling has returned grades of up to 106g/t Au in veins and 20g/t in massive sulphide. The erratic nature of the gold mineralisation means the current strategy is focused on defining the continuity of the high-grade vein sets.

AEX reported results from the first field programme in November 2017, which was completed under budget. In total, $2m was spent on Nalunaq exploration, $140k on Tartoq and $192k on camp and equipment upgrades. A total of 2,445m of diamond core drilling was completed from 14 drill holes, which confirmed the strike continuity of the MV across the mountain, reinforcing the structural interpretation outlined in the NI 43-101 report.

In July 2018, AEX commenced its 2018 summer work programme at Nalunaq after completing a C$2.5m fund raise in May 2018. The exploration programme ran until early September and comprised almost 4,000m of core drilling. The aim of the 2018 programme was to generate an updated resource estimate prior to commencing a PEA. The programme comprised:

AEX has paved the way for the 2018 programme by investing in infrastructure. A 20-person containerised camp has been constructed and the mobile equipment fleet has been expanded. The company has also rehabilitated the 9km access road from the camp to the mine through the constructing a bridge across the main river to help facilitate current and future exploration work. The drilling was completed in early September and once assays have been received, work on a new resource estimate will begin.

Eldur Olafsson, founder, director and CEO. A geologist with eight years’ experience in the geothermal, oil & gas and mining industries. Eldur was previously business development lead at Geysir Green Energy (2008–2010) and technical director of Enex China (2009–2010). He has founded several natural resource businesses including Orka Energy (2010–2012) focused on geothermal assets in China and the Philippines and Iceland Petroleum, later being Arctic Resources Capital 2012–2016, focused on acquiring integrated mining projects in Greenland.

George Fowlie, chairman. Currently chairman of Crown Capital Partners. Numerous senior roles including MD at First Marathon Securities, head of investment banking of Westwind Partners and chairman of Maudore Minerals.

Ingrid Martin, chief financial officer, CPA, CA. Accountant with extensive experience in the junior mining sector. Currently chief financial officer of Midland Exploration, Sphinx Resources, Geomega Resources, Hinterland Metals and Kintavar Exploration.

Graham Stewart, director, has over 25 years’ experience in oil and gas technical and commercial affairs. He founded Faroe Petroleum in 2008 and has been CEO since 2002.

Robert Menard, director. Professional engineer in the province of Quebec with extensive experience in the mining sector; most recently director of engineering and construction for Newmont Mining’s Surgold Merian gold project in Suriname.

William Kellaway, VP of exploration. Experienced geologist with over 36 years’ experience, working in 40 countries within the petroleum, mining and exploration sectors. Previously chief mine geologist at Gold Fields, and director and practice leader at SRK Exploration Services.

Georgia Quenby - Director. Experienced UK and US qualified commercial lawyer. Ms. Quenby has worked extensively on cross-border M&A and financing transactions across the oil and gas, defence and mining industries.

Justinas Matusevicius - VP of Operations and logistics. Degree in Economics, MSc in Finance and Strategic Management. Previously worked for EY Audit and Consulting and participated in the founding of Iceland Petroleum in 2012 which was later reorganised into ARC, where he has been a Manager since 2014. Mr Matusevicius oversees operations and administration.

Joan Plant – Corporate Secretary. Experienced Corporate Secretary. Currently Corporate Secretary of FBC Group and previously Operations Manager of Angel Mining PLC (2010 – 2013).

As of the end of June 2018, the last reporting date, the company had C$1.8m in cash on the balance sheet. This follows the non-brokered private placement of C$2.5m completed in May 2018, with the June 2018 cash figure reflecting ongoing exploration expenditure. Subsequent to the last balance sheet date, AEX completed a C$1m non-brokered private placement in October 2018. The funds will support ongoing exploration activities and desk top geological work which will be the focus over the coming months.

Greenland has consistently ranked as an attractive jurisdiction for mining. In the 2017 edition of the Fraser Institute Annual Survey of Mining Companies, Greenland ranks 34 out of 91 jurisdictions in terms of investment attractiveness and over the last five years, the country has typically ranked in the upper third of the index. The scores are based on a variety of detailed rankings, with the overall Investment Attractiveness Index constructed by combining the Best Practices Mineral Potential index, which rates regions based on their geological attractiveness, and the Policy Perception Index, a composite index that measures the effects of government policy on attitudes toward exploration investment, eg onerous regulations, taxation levels or the quality of infrastructure.

Greenland has a stable, European-style democracy, being an autonomous country within the Danish realm. The government of Greenland is becoming increasingly proactive in terms of attracting investment in the mining sector, given that the only other primary industries are hunting, fishing and tourism. With a very small population of c 56,000, the government remains keen to diversify and build the economy and create employment opportunities.

While the country remains relatively remote and three-quarters covered by ice sheets, the south-west coast where AEX’s projects are located is relatively accessible, being free of pack ice and with a year-round shipping season. Exploration is still challenging, however the AEX team has extensive experience of operating in Arctic conditions. Whilst the summer field season for surface drilling can be short, AEX's next phase of development involves work underground which can be performed all year round. Nalunaq Mine also previously operated 365 days a year. We view Greenland as relatively under explored compared to other jurisdictions.