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Golden Elephant in Mexico Metates advances with 28 MMoz AuEq

www.chesapeakegold.com • 604.731.1094

P. Randy Reifel
President

During the past 25 years, Randy Reifel, President Chesapeake Gold, has an undeniably successful record in the resource sector. Prior to establishing Chesapeake, Mr. Reifel was president of two exploration companies focused in Latin America: Carson Gold and Francisco Gold. Mr. Reifel’s early recognition of the potential of the Kilometer 88 gold district in Venezuela led to Carson Gold being acquired in 1993. He hit another home run with Francisco Gold, which discovered the world class El Sauzal and Marlin gold projects. He then sold Francisco to Glamis Gold in 2002 for $390 million. Today Mr. Reifel’s Chesapeake Gold (TSXV: CKG) is advancing its 100% owned Metates project (28 million oz gold equivalent resource) in Mexico to pre-feasibility.

Resource Intelligence: Randy, your history of success speaks for itself. Before we talk about your current work, would you comment on your past successes with Carson and Francisco?

Randy Reifel: Of course. Carson was a case of being in the right place at the right time. I was fortunate to be in Venezuela when Las Cristinas was still being mined by thousands of garimpeiros. The potential of the district was immense. Patience and focus led to Carson assembling a significant land position in Kilometer 88 before it was recognized internationally, followed by the ensuing gold rush.

I also recognized the challenges and risks of doing business in Venezuela. When the mania became too rich it was also evident that it was the time to sell control of Carson Gold. A prudent decision then, and now, in retrospect.
Francisco’s success was based on the grassroots discovery of two great gold projects. El Sauzal, in Mexico and Marlin, in Guatemala, which were discovered by the old fashioned “boots and hammers” approach. I am a business man, not a geologist. Most of the credit for our success belongs to my geological team for their passion and perseverance.
From the business side, the sale of Francisco to Glamis was an innovative transaction that is now becoming commonplace. Chesapeake was a spin-out exploration company from Francisco and, I believe, one of the first “Exploration Spin-Cos” for future M&A templates.

RI: Chesapeake was spun-out from Francisco Gold in 2002. When did you acquire the massive Metates gold project?

RI: I negotiated to acquire Metates in 2005 from American Gold Capital when gold was trading at $425/oz. By the time the transaction closed in late 2006, gold was trading at $650/oz.

RI: Metates was drilled and advanced to pre-feasibility by Cambior in the early 1990s. The project is one of the largest undeveloped gold and silver projects in the world, yet it sat dormant for a decade before Chesapeake acquired it. Besides higher metal prices, what has changed since Cambior owned Metates?

RI: First, as you suggested, Cambior was confronted with sub-$400/oz gold prices, as compared to current metal prices. Also, Metates’ ore is refractory ore; during the 1990s technologies such as pressure oxidation to extract gold from refractory ore were in their infancy and relatively unknown. Today, many of the largest gold deposits in the world are very successful, profitable mines using pressure oxidation.

RI: When you acquired Metates what was your objective? And what was your biggest challenge?

RI: Metates is a massive, well defined resource containing at today’s metal prices a gold equivalent resource of more than 30 million ounces. However, despite its size, the deposit is relatively low grade (1 g/t gold AuEq), metallurgically challenged and located in the Sierra Madres. My objective was to develop a process flowsheet using off-the-shelf conventional technologies, scalable to a large open pit mine. The challenge was whether the outcome would result in capital and operating costs that would foresee the project feasible in an $850/oz gold environment.

RI: In 2010, Chesapeake released a Preliminary Economic Assessment report (PEA) that showed excellent economics at $900/oz gold and $14/oz silver. What were the major factors contributing to such strong project economics?

RI: There were several key factors that M3 Engineering and our technical team and other consultants developed that led to the solid results in the PEA. Designing a pipeline to transport a bulk concentrate downhill to a location proximate to excellent mine infrastructure unlocked major value. The conceptual flow sheet has two significant inputs impacting operating costs: Power and limestone. The pipeline enabled the process facilities to be sited on a large limestone resource and close to the Mexican power grid. Power consumption is approximately 35%-40% of Metates operating costs, and that is why we are looking at dedicated power to supply low cost, long term stable electricity. Close proximity to the limestone resource has reduced our cash costs for tailings neutralization by as much as $50-$75/oz.
Also, as you would expect, a low grade deposit requires the economies of a large scale, open pit operation, which is difficult in a mountainous setting. The pipeline facilitates a plus-100,000 tpd open pit mine utilizing the existing topography and canyons as natural storage for the waste rock and tailings. The process facilities are now located in the foothills in a relatively flat terrain close to available water, transportation and labour.

RI: What are Chesapeake’s plans to move the project further ahead in 2011?

RI: Chesapeake has a busy year planned to further advance Metates to pre-feasibility. Last week, a 20,000 metre core drill program commenced to convert the inferred resources to the indicated category. Metates is by no means drilled-out and over 20 step-out holes are planned to increase the resource size. We believe the project economics can also be further improved by increasing the ore throughput to 120,000 tpd and evaluating various CAPEX trade-offs for the power source, pipeline route, grinding circuit and alternative zinc recovery processes.

RI: Any idea as to the impact these measures will have on the project’s economics?

RI: We’re still in early days, but preliminary work indicates that increasing the mining rate together with the trade-off studies underway will greatly improve the IRR shorten the capital payback timeline.

RI: When do you anticipate the PFS to be completed?

RI: Late 2011. Most likely late November to
early December.

RI: How will Metates rank as a gold and
silver producer?

RI: Once in production, Metates will be one of the top ten gold and, interestingly enough, silver producers in the world. At 120,000 tpd, Metates will produce about 20 million ounces of silver annually, out-performing most pure silver mines. If you are a bull on silver, you become a bull on Metates because it is one of the big elephants out there today.

RI: You recently spun out the Talapoosa project into a company now called Gunpoint Exploration. You retained 82% ownership of this company.

RI: Talapoosa is a meaningful asset with 1 million ounces AuEq that was not getting recognized in Chesapeake. With strong metal prices, it seemed prudent to place it in a vehicle where not only the known resource can be increased but the project’s exciting exploration upside can be tested. Max Baker, the CEO for Gunpoint, is one of the top geologists I know in the industry. Max believes Talapoosa has the potential to be a 2-3 million ounce gold deposit and a 7,000 meter drill program is planned this spring. The Mexican gold projects vended to Gunpoint also provide a promising exploration pipeline as well.

Investor Highlights:

• Stage: Preliminary Economic Assessment study
• Market cap: $508 million
• Share price: $12.75
• as of February 22, 2011
• Commodity: Gold, silver, zinc
• Mine life: 27 years
• Cash: $22 million

Highlights:

• Massive Mexican resource: Measured and indicated 17.2MM oz Au, 467 mm oz Ag and 3.4 bn lbs Zn plus inferred resources
• Deposit open along strike in both directions
• 20,000 meter core drill program underway
• 27 year mine life at 90,000 tpd
• Life of mine annual gold equivalent production averages 722,700 oz at a direct cost of US$366 per ounce including zinc credits
• Metates is located in mine friendly Durango, Mexico
• Prefeasibility study (PFS) due late 2011
• PFS will increase throughput to 120,000 tpd and improve overall project economics
• Chesapeake holds 82% of Gunpoint Exploration (GUN:TSX-V) with 1MM oz (AuEq) Talapoosa project in Nevada