Operating History

The Gays River deposit, known as the Scotia Mine, was initially discovered by Cuvier Mines and Esso Minerals in 1973, and developed as a mine in 1978/79 by Esso. Initial production focused on mining high grade zinc-lead mineralization by underground methods. Mine production was frustrated by water inflows that made it difficult to mine the high grade ores and production ceased in 1981.

In 1988/89 Seabright Resources/Western Miner dewatered the former Esso underground workings and resumed mining until early 1991 and recovered 187,000 tonnes grading 7.47% zinc and 3.50% lead. Subsequently through a number of transactions, the mine ended up in the portfolio of HudBay Minerals Inc.

In April 2006, Acadian Mining Corporation purchased the Scotia Mine from HudBay and re-engineered the mine as an open pit operation and spent $28.9 million in exploration and refurbishment of the facilities, including $7.5 million in acquisition cost. Production commenced in mid 2007 and ceased in early 2009 with the collapse of zinc and lead prices.

The accompanying charts of quarterly mine/mill production, ore grades, tonnes of concentrate and cash cost of production illustrate the operational history. Early production reflected the processing of the generally lower grades of the near surface mineralization within the open pit. Due to the mining sequence, and flooding of the pit due to an unusual precipitation event, ScoZinc did not reach plan production until Q3 2008.

During the third quarter, the mine achieved an attractive C1 cash cost of production of US$0.51/lb of zinc. In Q4 2008, Acadian entered bankruptcy as zinc and lead prices declined. Mine staffs were reduced and the mine had negative cash flow from operations. Production continued for several months processing low grade mineralization stockpiled from the exposed upper benches until the mine was closed in the first quarter of 2009.

The following tables illustrate production history of Scotia Mine by Acadian Mining during 2007 through

image8

image9