PEA boosts Border Coal indicated resource estimates, Goldsource lays groundwork for pre-feasibility

PEA boosts Border Coal indicated resource estimates

, Goldsource lays groundwork for pre-feasibility

goldsourcemines.com 604.694.1760

N. Eric Fier, CPG, P.Eng.

Chief Operating Officer

Goldsource Mines Inc (TSXV: GXS) is a resource company engaged in the exploration and development of Canada's newest coalfield in the province of Saskatchewan. Following the landmark discovery of coal deposits in 2008 and extensive drilling on this new thermal coalfield, the Border Coal Project has an estimated 170 million tonnes of coals in all categories as reported in the coal company's latest preliminary economic assessment announced in February 2011. COO Eric Fier discusses the company's priorities this year, including efforts to find more economically viable technologies for processing Border coal and why Goldsource could fuel one's portfolio.

Resource Intelligence: I understand the results of the 2009/2010 winter exploration program at Border indicate good potential. Could you tell us more about those results?

Eric Fier: Our second winter program started in December 2009 and ran until about April of 2010. During that period we drilled 27 more holes for a total of 146 holes. That program was dedicated mostly to converting inferred resources and speculative coal resources to indicated resources. We were successful in doing that: our indicated resources are up by about 20%. The overall coal resource is about 170 million tonnes. We could go out and drill another 30 or 40 holes and probably significantly increase the resource. The challenge right now is to find a market for the coal.

RI: What are the potential uses and market for Border coal?

EF: That market could be power-generation, coal-to-liquids, or gasification or longer-term export markets. Currently from an economic standpoint it appears that the coal-to-liquids market is more attractive partly because the coals that we're dealing with are marine coals, which have a higher component of sodium. If you think of the coals being deposited at the shoreline of an ocean 100 million years ago you would see a lot of salt, which is sodium chloride. That's what we have to deal with in the coals now, 100 million years later. The chloride is a benefit but the sodium isn't. So right now we're taking the approach that the coal-to-liquids market is the best. This doesn't mean that the power-generation market is out; it's just that the coal-to-liquids is currently more attractive economically.

RI: Are you looking at the local market?

EF: Right now the conceptual design we're looking at is to put a process plant on-site next to the rail. These coal deposits are conveniently located right next to the rail, a highway, and a local community that can support this. So whether it was the coal-to-liquids plant or eventually a power generation plant, it would be local. We would be supported by local services and hopefully local labor. It would have a significant positive impact on the area, which has been depressed for years now because of the wood industry and shutdowns.

RI: Having had successful results in your exploration program last year, what's next for the Border project?

EF: Right now we're looking at financing. We currently have about $1 million in the bank. The next phase, at which we will send bulk samples for testing for viability in the coal-to-liquids market and potentially the power-generation, will cost us about $3 million. Those test facilities and labs are located in the US so they require anywhere from 1 to 3 tonnes of coal and this requires us to collect that material through a large diameter drill program.

RI: How do you plan to finance this program?

EF: Via short form prospectus and private placement equity. We just need the Preliminary Assessment Technical Report to support that.

RI: Border is quite unique in terms of the characteristics of the mine. You have found huge thicknesses that are not normally seen in coal deposits. What are the upsides of such characteristics?

EF: On the upside, they are very thick coal seams and they are in these basins that could be up to 1.5 to 2 km in diameter. We've seen thicknesses up to 124 metres, which are world-class drill intercepts for coal. Part of the upside to that, being concentrated in one area, is that you don't have a huge footprint when you mine it. Most of the coals in Alberta that are mined are stretched over kilometres: where you have a coal seam that is 1 to 3 metres wide and it goes for kilometres squared and in order to mine those you have to disturb the kilometres squared. By comparison, Border would leave a very small footprint of disturbance.

Border coal sample.

RI: On the other hand, what are the challenges?

EF: From the big picture standpoint the challenges are just the stigma of coal and generating energy from coal. In educating the market we all have to remember that we've been using coal since the Industrial Revolution and it could take another 100 years before we stop using coal; a lot of our energy infrastructure worldwide is built around using coal. I'm an advocate of replacing coal with cleaner technology as long as it's competitive in price. For coal itself, you can't get much better as far as value goes for heat value. Between paying $0.60-$0.70 per kWh for wind power and paying $0.05-$0.10 per kWh for coal, I would prefer paying for coal. There is a balance there, environmental challenges around coal and air-quality challenges. A lot of it is just educating those who make those decisions that coal is with us and it's here to stay. Probably our biggest challenge with the Border project is to get people to understand that there is a very large resource there and it is an energy resource that just has to be tapped into the market. From a common- sense standpoint almost everybody wants to feed their families, have a job, and be able to retire comfortably. When the natural resource industry, including coal, is attacked, jobs and retirement dreams are at stake and the consumer is going to pay for it through higher energy cost. It's going to take more money out of the average guy on the street including those that attack coal production and power plants.

RI: You spoke about the huge resource that is yet to be tapped. What's the size of the deposit at Border and how much of the property remains unexplored?

EF: Right now we have about 170 million tonnes of coal that is sub-bituminous coal; it's not a metallurgical coal, you don't use it for steel, you use it for either power generation or coal-to-liquids depending on the choice of technology that you decide to go with. There is potential to double that pretty easily. We have a significant land package and we've only explored about 10% of that land package so far. The only constraint that's stopping us from exploring further and doubling the resource is lack of market. There's little incentive to look for more if you don't have a market.

RI: What are the company's priorities this year?

EF: To finance and to do a bulk sample and to get the results back from that bulk sample and wrap that into a pre-feasibility study. This new technical report that's out is a Preliminary Economic Assessment. The progression of events is usually to go to a pre-feasibility after that. That's what we're shooting for this year. We also have planned a few holes to test some larger targets that look quite attractive. That's to show that the resource is a lot more than 170 million tonnes. But once again we still have to establish what we're going to do with the first 170 million tonnes before we go find the next.

RI: If I were an investor could you give me the selling points for this project?

EF: Coal prices are going up. If you believe in the China and India markets and the significant energy that they need, then coal prices will remain up or increase further. If you, as an investor, believe that we need to develop our natural resources in a responsible manner and you believe in coal, then that makes Border coal and Goldsource an attractive part of your portfolio. Goldsource has proven management and a lot of contacts in Saskatchewan and has worked closely with government, which is very important when you're working with this type of a resource. The Border coal deposit is probably in one of the best areas to develop this type of resource in Canada. It's right next to a rail and a community that's fully supportive, which could accelerate permitting and therefore could expedite move into production. Border also has easy access to infrastructure right down into the United States, reducing the operating and capital costs required.

RI: Is there any other info investors should know about Goldsource?

EF: We at Goldsource have been a bit quiet lately because we've been working diligently on trying to get this Preliminary Economic Assessment done. We are also in discussion with several groups worldwide with regards to potential partnerships in new, alternative technologies for coal-to-liquids and power-generation that may be a lot more attractive from the value standpoint as far as capital and operating costs go. There are some new high-tech technologies for coal-to-liquids that would require capital costs of possibly only 10% or 20% of what it would cost for a conventional coal-to-liquids plant. If we can prove that our coal can be used for this, using this technology, and that the operating and capital costs required are much less than the costs that proven technologies on the market right now require, then investors and potential investors would come. Investors need to understand, however, that this could be a long process because it takes a while to get these technologies aligned with the resource. If you're looking for a day trade because you're going to be building a coal-to-liquids plant in six months, it's not going to happen. These things take time to permit and so you have to be a patient investor but that patience should pay off in the long run. The resource is there, it is an energy resource and at some point it will be tapped and used and the value will come to market.

Investor Highlights:

Stage: Preliminary assessment

Market cap: $20,000,000

Share price: $0.90

Commodity: Coal

Mine life: 40 years

Cash: $1,000,000

Highlights:

The Border Coal Project is in an attractive area to develop coal in Canada: its easy access to rail and road infrastructure and a supportive local community could cut operating and capital costs, accelerate permitting, and expedite the move into production.

The Border coalfield's unique characteristic: very thick coal seams concentrated in one area, means less disturbance on the environment come mining stage

Border coal has higher heat value and lower ash than lignites in southern Saskatchewan and has manageable sulphur component

Goldsource has proven management, a wide network of valuable contacts in Saskatchewan, and has worked closely with government

Robust energy demand from China and India bodes well for coal prices

Positive Preliminary Ecomonic Assessment of the Border Coal project with the use of proven coal-to-liquids technology

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