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North East Zone Option

Northeast Zone Option Location and Description
The Northeast Zone Option property comprises a group of 8 mineral claims covering 1,595 hectares (4,000 acres) located immediately south of the Reed Joint Venture Property and is bound on its northern boundary by the Tower Zone Option and Super Zone Options. A paved Provincial highway provides all season road access for exploration crews across the claims. The highway connects the property with the mining communities of Snow Lake (82 km to the east) and Flin Flon (100 km to the west).  The southern boundary of this property is bounded by VMS's Reed Lake Project, a large Mineral Exploration License held 100% by the Company (MEL 268A). 

Expenditures required for completion of the first anniversary terms of the option agreement have been met. A further $125,000 must be spent in exploration activity before the anniversary date of July 5, 2012. This would make the total expenditures of $200,000 which is the required expenditure amount to meet by the end of year 2.

History of Exploration
Like the other properties in the area that comprise the  Reed Lake JV-Option agreement the Northeast Option Zone is situated near the northern boundary of the flat-lying Paleozoic cover rocks. Underneath these Paleozoic -aged cover rocks are much older Proterozoic-aged volcanic rocks which are the host to the valuable mineral deposits being explored for by the Company. As such, the deposits are not exposed at surface and a great deal more geological detective work is required to locate them.

The property has limited exploration which has included some airborne geophysical surveying and no drilling. 

Geology
The property is located near at the northern limits of the Western Canada Sedimentary Basin, which are younger sedimentary rocks that overlie the older and prospective volcanic rocks being explored for copper-zinc-gold-silver poly-metallic deposits in the area. Most of the property is covered by this flat-lying layer approximately 20 m thick and/or glacial till  all of which prevent geologists from directly seeing the rocks underneath. From drill core and correlation of known rock units to geophysical survey maps it is known that the same prospective rock package hosting the Reed Deposit is present beneath these claims.

The geology of the Northeast Option property consists of felsic and mafic volcanic rocks characteristic of the mine hosting areas in the Flin Flon – Snow Lake Greenstone Belt. The geology of the area is a continuation of the Four Mile Island Assemblage of rocks which host 2 past copper-zinc producers (Dickstone and Spruce Point Mines) and several deposits including the one discovered by the Company in 2007. The assemblage consists of mafic and felsic volcanic and intrusive rocks which are of the same age as those hosting the bulk of the VMS deposits in the Flin Flon domain.

Geophysics
VTEM Airborne geophysical surveys were flown over the property. In 2007 a survey flown in approximately a west to northwest direction and a second survey flown in a north south direction, was flown to better couple with the trend direction of the prospective target rocks, was completed in 2008.

The geophysical surveys completed to date have provided both targets for drilling as well as a better understanding of the underlying geology o f the property.

Deposit Types
Base metal massive sulphide mineralization hosted within a sequence of volcanic rocks and exhalite are strongly indicative of volcanogenic massive sulphide type base metal mineralization (“VMS”). This deposit type is representative of Flin Flon belt VMS deposits including the Discovery Zone at Reed Lake. This deposit-type remains a priority target for the Company in its surrounding properties.

Current Activities on the Property

The Company is no longer operator of the properties so future exploration and development activities will be undertaken by HudBay Minerals through its subsidiary and overseen by a joint management committee of representatives of the two companies. One diamond drill hole, (RLE013) was collared on this option testing a high magnetic anomaly. No significant assays were encountered.

The terms of the agreement include expenditures of $400,000 and payments of $110,000 over a 3 year period  following signing of the deal with the Company. HudBay communicated to the Company that expenditures required for the completion of the first anniversary terms of the option agreement have been made prior to the July 5, 2011 anniversary date.

Under the terms of the agreement with HudBay, a further $125,000 must be spent in exploration activity before the anniversary date of July 5, 2012. This would make the total expenditures of $200,000 which is the required expenditure amount to meet by the end of year 2. Additional drilling and geophysical surveys may be warranted pending review of the geophysical data.


Option Agreement with HudBay Minerals Inc.

On June 6, 2010 the Company announced the signing of a Joint Venture Agreement with a subsidiary of HudBay Minerals Inc. Pursuant to the Joint Venture Agreement, HudBay has a 70% interest and VMS has a 30% interest in a joint venture respecting the Reed Lake property and the two claims immediately to the south. The JV area includes the Reed Lake Discovery Zone mineral deposit.  HudBay will act as operator of the joint venture with authority and discretion as to the exploration and potential development of the property and will have exclusive rights to purchase and market the ore produced from the property.

HudBay will also provide full financing for VMS' proportionate share of the costs to develop the property, which will be repayable solely from VMS' share of cash flow generated by the Project. Upon VMS making certain filings to confirm the previously-disputed boundaries of the joint venture claims, HudBay will make a cash payment to VMS of $2.6 million, as consideration for VMS transferring the southern claims to the joint venture and in lieu of HudBay's obligation to earn back into the property under the initial option agreement between the parties.

An aggressive drill program, in preparation for a resource estimate, has commenced, to be followed by additional drilling to bring the resource into a reserve category and exploration drilling to expand the known resource and identify new deposits on the property.

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