Historical Overview

Persistent exploration since 1998 over a blind or hidden target, located north-west of Young in central NSW has yielded vast resources of nickel, cobalt, scandium and iron.  This was virtually a new discovery and was totally concealed by varying depths of alluvium.  Airborne magnetics, followed by ground magnetics and occasional fresh serpentine outcrop provided the vital clues that led to the discovery.

Drilling of the magnetic anomalies has produced a resource of 167 million tonnes at 0.72% nickel and 0.07% cobalt.

Follow up metallurgical testwork based initially on High Pressure Acid Leach (HPAL) technology and using sulphuric acid yielded better than average recoveries for nickel and cobalt.  The production difficulties using this process in WA are well documented and indeed on-going.   The company then tested a non-pressurised sulphuric acid leach process in Reno, Nevada.   This process worked for saprolite type resources but was of limited effect on limonite/haematite resources.  The process was therefore deemed too selective and in any event, the pelletising process needed prior to treatment was not consistent.

The company's metallurgical consultant then recommended in December 2003, that we explore the possibilities of an Atmospheric Chloride Leach Process (ACLP) using hydrochloric acid.   During 2004 this new process was applied to sample from Young with considerable success for all three lithologies tested viz Haematite, Limonite and Saprolite. More exhaustive tests have commenced in Sydney (Metcon Laboratories) in a two-pronged attack:

1. Agitation leach testwork using hydrochloric acid in a magnesium chloride brine; and
2. A heap leach approach using hydrochloric acid and a polymer binder.

A possible extra benefit may be a consequence of the use of chloride chemistry in that, apart from nickel and cobalt recovery, by-product scandium, pure iron ore and pure magnesite (Mg0) should be recoverable.

A brief review of metal prices for all recoverable metals is presented.

The Geology and Resource Statements in this report have been prepared by A. Jannink (FAusIMM) a founding partner of the geological consulting firm Douglas McKenna & Partners Pty Ltd.   Mr Jannink has 40 years of geological experience in Australia.

1. GENERAL

1.1 Exploration Licences 5527, 5571 and 5152

The Young nickel/cobalt laterite project was initiated by a search of the Minfinder Database of the NSW Department of Mineral Resources.  

Jervois has focussed on mineral exploration within Australia and as part of this on-going activity, the first Exploration Licence was granted at Young in 1998.  Two more Exploration Licences were acquired subsequently and the total area under exploration licence is now 265 square kilometres.  Within these licences, extensive drilling has yielded resources in laterite in the indicated and inferred category of greater than 1.3 million tonnes of nickel, greater than 115,000 tonnes of cobalt and greater than 5000 tonnes of the exotic metal scandium.   The high iron content of the hematite and limonite zones allows consideration of iron concentrate production also.   As a consequence of funding provided by our loyal shareholders, the company still retains 100% equity in the exploration tenements and resources.

1.2 Location

The Young/Cootamundra/Grenfell district lies in central NSW. Young is situated about 300 km inland and slightly south-west of Sydney. Young and Cootamundra lie on the Olympic Highway that connects Albury to Sydney via Wagga Wagga and Bathurst. The area is well serviced by roads, rail (the Sydney-Melbourne railway line and numerous branches to agricultural centres), electrical power, gas (the Cooper Basin-Sydney pipeline passes through the exploration licences in a favourable position), water, airports and other ammenities.

The Young/Cootamundra/Grenfell district contains prime quality agricultural land. In a normal year about 50mm of rain falls each month and every month. The countryside is undulating to flat, this latter is the alluvial covered north-west of the licences. Elevation are between 300 and 500 metres Australian Height Datum (AHD).

The closest mining activity to the Jervois resource is an operating open pit magnesite mine located just west of the Jervois' nickel/cobalt resources of Thuddungra. The Company has access and compensation agreements with 38 landowners covering the areas of interest.

2.1 Resources

Four deposits have been delineated, three of them over the same serpentine belt but separated along strike by either fresh unaltered serpentine or by Tertiary erosional alluvial infill.   The deposits occur over a strike length of 30 kilometres with widths of 200 to 600 metres and are classified in the Indicated and Inferred  categories.   Jervois Mining Limited holds 265 square kilometres under Exploration Licences between Grenfell and Cootamundra.   The licences are for Group 1 minerals (Metallic).

Cut-Off Grade	Tonnes	%Ni	%Co
0.6% Ni	167 million	0.72	0.07
Including 0.8% Ni	58 million	0.99	0.07
In addition Low Grade 0.3% Ni	113 million	0.38	0.04
Total Resource	280 million	0.58	0.06

 Assays for the metal scandium were carried out on representative bulk samples drawn from the Thuddungra East Arm and the Low Grade Resources.   Scandium grades of 41g/t equate to a resource of over 5,000 tonnes of scandium metal potentially recoverable as a by-product.

2.2 Nickel/Cobalt Laterites at Young, NSW

The source of the nickel/cobalt mineralisation is the Wambidgee Serpentinite of Cambrian age.  The serpentinites (originally harzburgites) have intruded the Jindalee Beds in elongate north-south bodies associated with faulting.   Regionally the serpentinites are mapped from Grenfell in the north to Tumut in the south, a distance of 150 kilometres.   In the Young/Cootamundra area they are flanked on the eastern side by the Silurian, Young Granodiorite.  It is believed that this is an important factor in the formation of the mineralised laterites.   Run-off in the region is from east to west (from the Great Dividing Range) and the acid-rich ground water, after traversing the 30 kilometre wide granite belt, has chemically leached the basic composition of the serpentinites, removing silica, magnesium and other solubles from its lattice and leaving enriched amounts of less soluable iron, aluminium, nickel and cobalt.

The Tertiary lateritisation has produced the following profile over the serpentinite bodies: 

Hematitic (Pisolitic) Clay			}
			} Scandium rich
Limonitic Clay		}	}
		} Cobalt rich
Saprolite (Smectitic Clay)	}	}
	} Nickel rich
Weathered Serpentinite	}

Fresh Serpentinite (Background Nickel/Cobalt/Scandium)

Depending on the topographical profile in geological times, the laterite can be overlain by up to 80 metres of Tertiary/Quaternary fluviatile/lacustrine clays, sands and gravels.

A feature of the laterisation is that there are at least two eras of weathering.  The displayed chip tray for YA223 shows repeated (haematite)/limonite/saprolite horizons.   Since the haematite horizon is less enriched in nickel and cobalt, there is frequently a middle (and sometimes upper) zone of low-grade material separating the run-of-mine mineralisation.  A further feature of the cross section shown is that the mineralisation can spread laterally across the underlying serpentinite/granite contact.

Since the underlying serpentinite source rocks are strongly magnetic, the exploration procedure was to locate the magnetic anomalies and pattern drill them.  The Cootamundra 1:250,000 sheet had been flown in November/December 1997 and February/March 1998 for magnetics/radiometrics for AGSO and the Department of Mineral Resources as part of the Discovery 2000 programme.  The total magnetic intensity map clearly depicts the serpentinites, other ultramafics and their trends beneath soil cover.

Ground magnetic traverses were then conducted along fence lines on the freehold properties with pin markers being attached to the fences every 200 metres for semi-permanent reference and the location of the ends of the lines were fixed using a GPS surveying instrument.  At this time, 186 kilometres of magnetic readings have been taken on 129 fence/road line traverses.

The follow-up drilling programmes have been confined to summer period between agriculture grain cropping and sowing times.   All the drilling, along the fence lines, has been by air-core drilling methods.  All holes have been backfilled with surplus sample and capped, about 0.3 metres below the surface, with an octoplug cap, then covered with soil.   The collars were surveyed using a Trimble PROXRS GPS system to an accuracy of about 1 metre.  Five drilling programmes have seen the completion of 335 holes for 12166 metres drilled.

2.3 Diamond and Calweld Rig Drilling at Young (NSW)

In 2001 three diamond drillholes in HQ-3 size were completed for a cumulative 162 metres.   One hole was drilled in each of the three main resources Ardnaree and East and West Thuddungra.   The core was drilled for metallurgical purposes and part of it was despatched in 2001 to The Technology Store Inc (TTS), Nevada, USA for processing and testwork.  A sample was also drawn from this core for Dr Bryn Harris in Canada in 2004. (see section 3.3)

Other important data obtained from the core drilling programme are a better geological understanding of the lateritised profile, which will assist in expanding the search for new resources and density measurements that showed that the previously used figures for resource calculations were conservative.

Phase 2 of the company's agreement with TTS required a bulk sample of lateritic material to be despatched for metallurgical testing in Nevada.  To obtain this sample, a programme of Calweld drilling was completed.   Five 0.65 metre diameter holes were drilled for a cumulative 125 metres.   From this drilling 44 metres were selected, weighing 19.5 tonnes (15 tonnes dry weight) and despatched in 44 gallon drums to the USA.

2.4 Recent Drilling

A programme of air core drilling to obtain fresh sample for further metallurgical testing was completed on 8th May 2005.  Six holes were drilled for a cumulative 352 metres.  The objective of the programme of in-fill drilling was to obtain at least 300 kg of nickeliferous laterite representing the four different lithologies and their scree equivalents of the resource for metallurgical testwork.   The work was successful and composited samples were despatched to Sydney on 31 May 2005.

 Drilling at Ardnaree (Young) Ni/Co Laterite, (2008)

In-fill drilling was carried out during the March and June Quarters of 2008.  In total 53 holes were completed for a cumulative 2284 metres mostly in or near the Ardnaree resources.  The programme was interrupted by wet weather but has finally been completed.

Intervals of interest were sampled and sent for assay.  The main objective of the drilling was to recover sample for metallurgical work in China and in Australia.

3 METALLURGY

3.1 High Presure Acid Leach (HPAL) Testwork

Testwork for metallurgical recovery of nickel and cobalt progressed more or less in parallel with exploration activities and as soon as it became evident that the resource tonnes were likely to be substantial.   In 1999 the only process alternatives considered by the company were the Ammonia Leach Process and the Pressure Acid Leach Process (the nickel grade was too low for matte smelting).   The Ammonia Leach Process was regarded as being unsuited to predominantly saprolite resources.   In early September 1999 sighter tests on selected drill hole sample using the HPAL process were successful, yielding recoveries of nickel and cobalt from 93% to 96%.  The samples were screened at 2mm and the coarse fraction rejected.  This raised the nickel grade on average by about 10%.  Further drilling in early 2000 yielded 500 kg of run-of mine sample for Ardnaree, East Thuddungra and West Thuddungra.  These larger samples became part of the company's pre-feasibility HPAL test programme.  The work was carried out at Hydrometallurgy Research Laboratories in Brisbane predominently, but Metcon Laboratories in Sydney also contributed.   This work was carried out during the period June to October 2000.  The work confirmed generally the 1999 sighter tests with 93% to 95% recoveries apart from West Thuddungra resource which yielded 86% recovery only.

About this time the three West Australian nickel laterite mines encountered unsurmountable difficulties with the HPAL process and ultimately led to the market viewing nickel/cobalt laterites with a very jaundiced eye.   This lasted until early 2004 when Canadian and European investors showed interest.   Subsequently Australian investor interest revived.

3.2 Atmospheric Pressure Sulphuric Acid Leach

In July 2000 the company was approached by one Willem Duyvesteyn whose company 'The Technology Store' (TTS Inc) offered a new high tech nickel and cobalt recovery process.  The process had evolved from the then BHP Centre for Minerals Technology located in Reno, Nevada.   Following a successful Phase I of the testwork wherein nickel recoveries for saprolite and weathered serpentine achieved recoveries of 88% and 94% respectively, it was decided to proceed to Phase II.   This latter phase needed larger sample (15 tonnes) which was obtained using a Calweld drilling rig.

In the event the process (with one or two exceptions) did not really work for haematite/limonite resources but worked well in short (1 metre) columns on saprolite and weathered serpentine.   The process basically needed the saprolite to form pellets of sufficient strength to maintain shape long enough for dilute sulphuric acid at atmospheric pressure to dissolve the valuable metals.   When this process was applied to 4 metre columns to simulate 'heap leach' conditions, it was found that the pellets in the first ½ metre of the columns disintegrated and stopped the flow.   This could be attributed to the effect of fresh acid at the top of the column.    The poor results achieved on the limonites were really the worst feature the process was just too selective for the Young resource.   Strangely, the process worked quite well on limonites, saprolites and weathered serpentines from the small Beaconsfield (Tasmania) laterite resource.

3.3 Atmospheric Chloride Leach Testwork

In mid 2003, reports began to emerge on the potential of a new atmospheric pressure acid leach process based around the use of hydrochloric acid.   The companys Sydney based metallurgical consultant, Dr Mal Jansen of International Project Development Services proposed an initial desk-top study of published literature on the process which was completed by the end of November 2003.   As a consequence the writer and Dr Jansen met the inventor of the process sometimes called the Atmospheric Chloride Leach Process (ACLP).   The inventor is Dr Bryn Harris, an internationally respected independent consultant in hydrometallurgy from Montreal, Canada, with world recognised expertise in acqueous chloride chemistry for recovery of base metals and magnesium from laterites and other mineral resources.

Dr Harris offered to arrange for testwork in Canada in 2004.  These were preliminary scoping tests on sample representative of the different litholigies present at the Young resource.   This testing began on 7 September 2004 and was virtually complete by 30 September 2004.  These tests yielded metal recoveries from the first stage of a two stage process as tabulated below:

Material	Extraction %	Extraction %	Extraction %
	Ni	Fe	Co
Hematite	59.3	47.0	74.6
Limonite	61.7	38.8	83.3
Saprolite (1)	72.5	59.3	96.7
Saprolite (2)	67.8	56.4	85.5
Saprolite (3)	73.5	58.8	84.7

A second stage in any operating circuit should improve nickel recovery further, and at the same time precipitate the iron.   Cobalt recovery is excellent from even the first stage.   The first stage leach tests were carried out at 20% solids loading for a period of 6 hours.

The weathered serpentine sample was not tested but would be expected to behave similarly to the saprolite test.   The results were sufficiently attractive to justify work on better grade and more representative sample.   Appealing features of this proposed process are the relatively short digestion time (6 hours) and the atmospheric pressure leach.

The air core drilling referred to in 2.4 yielded, after compositing, about 300 kg of nickeliferous laterite as planned.   These samples were sent to Metcon Laboratories in Sydney and arrived on 1.6.05.

Appropriate metallurgical testwork on these samples has started.   The work will be carried out at Metcon Laboratories with technical input from Dr Harris from Montreal and Dr Jansen from Sydney.  Basically the testwork will involve chloride agitation leaching at atmospheric pressure, although the process conditions are significantly different from the original studies mentioned above that were carried out in Canada and have been designed to accommodate the unique properties of the Young laterites.   In this new test programme, there will also be 'bottle roll' and column leach tests to simulate an equivalent 'heap leach' configuration, also at atmospheric pressure,   essentially a two-pronged attack on the Young laterites with the objective of unlocking economically, the metal value in these vast resources.  The company's experience with pre-conditioning and heap leach treatment of gold laterites should be a benefit.   There is some precedent in heap leach of nickel laterites which is presently in progress at 'pilot' stage in Turkey by European Nickel PLC.

The intent of this agitation leach testwork is to recover nickel, cobalt and scandium with possible accessory mineral recovery of a pure iron oxide (Fe2O3) and pure magnesia (MgO).

Ongoing Metallurgical Testwork Update

Leaching of nickel/cobalt laterites using hydrochloric acid (HCl) in magnesium chloride brine is known to be effective with excellent recoveries (i.e. greater than 90%) for both nickel and cobalt.  A disadvantage is the cost of hydrochloric acid and the amount of acid necessary to dissolve the nickel bearing minerals to release nickel.  As a consequence the re-generation of the hydrochloric acid is an essential step.

Recent testwork in Australia and Canada suggests that a breakthrough in the iron hydrolysis processing step is potentially in sight.   Batch hydrolysis tests in a local laboratory appear to have obtained up to 95% ferric chloride hydrolysis conversion to hematite and produced correspondingly high-strength acid for recycle to leach.

Further lab scale and future mini-plant testing are planned so that Jervois can pursue this highly encouraging development.

The purpose of the iron hydrolysis and acid recovery step is to convert iron and other by-product metal chlorides in the leach solution to hematite and other by-product metal oxides; whilst producing concentrated hydrochloric acid for recycling back to the laterite leach step and concentrated low-iron solution for impurity removal and nickel hydroxide/metal production.

3.4 Mineralogy

A preliminary mineralogical assessment of sample drawn from seven discrete lithologies will be carried out by Pontifex and Associates Pty Ltd, Adelaide.   This work will be in support of and complimentary to the chloride leach testwork being carried out at Metcon Laboratories.

The following resource types will be assessed:

1. Haematite

2. Limonite

3. Saprolite

4. Weathered Serpentine

5. Hematite Scree

6. Limonite Scree

7. Saprolite Scree

This work should be completed by 30 September 2005.

3.5 Chloride Chemistry and its Application to Laterites

In recent years there has been a consistent search for a metallurgical process which would be simpler and cheaper to use than the Ammonia Leach or Pressure Acid Leach Process for recovery of nickel and cobalt from laterites.   The company's metallurgical consultant and a major shareholder both recommended an atmospheric chloride leach process or some variation of this approach.   In broad outline, hydrochloric acid leaches the nickel and cobalt in a magnesium chloride/sodium chloride brine at elevated temperature but at atmospheric pressure.   The end product is a mixed nickel/cobalt hydroxide with regeneration and recovery of hydrochloric acid and the metallic salt brine.   The chemistry is believed to be sound but laterites in general tend to be very different and the company needs these processes to be tailored to suit the Young laterite resource.

THE FUTURE FOR THE YOUNG PROJECT

4.1 Mining

The Young nickel/cobalt resource is lower in nickel grade than many tropical laterites overseas.   Conversely the cobalt content is above average.   The Young resource does have the advantage, compared with other Australian laterites, of the best possible location with regard to existing infrastructure.   Any process selected for Young must be flexible enough to accept a blend of limonite, saprolite and weathered serpentine (the three main resource categories).   This blend would be mined at a rate of 10 to 15 million tonnes per annum yielding 60,000 tonnes to 90,000 tonnes of nickel and 6000 to 9000 tonnes of cobalt.   If the heap leach approach is effective on the upper lower grade resource, the mine may reach 20 million tonnes per annum and perhaps 100,000 tonnes per annum of nickel.

MARKETING OF PRODUCTS

5.1 Nickel

  Average price for nickel in 2006 US$11.01/lb,

  Average price for nickel in 2007 US$16.55/lb

  Average price for nickel in 2008 US$9.57/Ib

 5.2 Cobalt

The cobalt market is currently tight. At the beginning of 2007 cobalt was US$25/lb and January 2008 sales of US$45/lb were recorded. Cobalt could spike to US$50/lb as global demand shows no sign of slowing.

5.3 Scandium

According to the US Geological Survey, Mineral Commodity Summaries January 2008, demand for scandium increased slightly in 2007. Scandium oxide (Sc203) at 99.9% purity trades nominally at US$1,400 per kilogram. Any serious increase in demand would have to come from fuel cell and aerospace applications. The market should increase sharply if production cost can be lowered.

5.4 Iron Ore

The Young resource contains extensive zones grading more than 30% Fe.   Chemically pure Fe203 is a possible by-product of the chloride process and could attract in the present bull market up to A$100.00 per tonne as a high grade concentrate.

5.5 Mg0/Manganese

Other possible by-products from the chloride leach approach would be pure magnesite and a manganese product (Mn02  battery grade).