Silica Frac Sand

On June 25, 2013, the Company announced the sale of its Manigotagan silica frac sand deposit.

The Manigotagan Property is located 170 km northeast of Winnipeg where Gossan held a silica sand deposit at Seymourville, on the east shore of Lake Winnipeg, directly across from Black Island where silica sand was extensively quarried prior to the island becoming a Provincial Park.

Gossan has entered into a purchase and sale agreement to vend its Manigotagan Silica Frac Sand Project, comprised of 9 quarry leases located near Seymourville Manitoba, to Claim Post Resources Inc. (CPS-TSX.V). Gossan has been seeking a joint-venture partner or a purchaser for the Project since completing a marketing study in late 2010. In 2012, Claim Post acquired the adjacent Seymourville Property to the south and announced plans to develop a frac sand operation. The consolidation of the two properties should improve the viability of the project.

To date, Gossan has received 4,000,000 shares of Claim Post and a total of $700,000 in two cash payments. Claim Post is delinquent in making one final cash property payment of $430,000 which was originally due on June 18, 2015, as well as advance royalty payments. Interest is also due at the rate of 1% per month. Gossan is currently booking these payments as received. As at June 18, 2016, Claim Post owed Gossan a total of $587,610. Gossan remains in ongoing discussions with Claim Post to find a satisfactory resolution. The agreement is also subject to a royalty interest.

Under the terms of an amended agreement, an initial semi-annual advance royalty payment of $50,000 became payable as of December 18, 2015. All frac sand produced, sold and paid from the nine Manigotagan leases is subject to a $1.00 per tonne production royalty payable quarterly and all other products are subject to a $0.50 per tonne production royalty. Although the royalty is solely payable on production from the Manigotagan leases, the agreement also provides for a minimum production royalty from both the Manigotagan and the adjacent Seymourville Property held by Claim Post, based on their relative remaining mining reserves of frac sand with Gossan’s Manigotagan Property having a deemed minimum mineable reserve of 6 million tonnes of frac sand. As at December 18, 2016, Claim Post owed Gossan a total of $673,760. Claim Post can acquire one-half of Gossan’s production royalty interest for $1.5 million at any time after making all of the required property payments.

On April 29, 2014, Claim Post announced an independent NI 43-101 Technical Report and Resource Estimate on the Seymourville Silica Sand Project, prepared by P & E Mining Consultants Inc. (“P&E”) which estimated an Inferred mineral resource of 25,959,000 tonnes at a grade of: 94.31% SiO2; 1.94% Al2O3; and 0.91% Fe2O3. The Report is filed on SEDAR and should be referred to for details.

On November 24, 2014, Claim Post announced the results of a NI 43-101 Preliminary Economic Study (PEA) on the Seymourville Frac Sand Project conducted by P & E Mining Consultants Inc. ("P&E"). The PEA examined a proposed quarrying operation with an initial annual capacity of 500,000 tonnes that would be expanded to 1 million tpa during the second year of operations.

More recently due to declining activity in the oil & gas sector coupled with increasing production, demand for frac sand and its profitability have been declining and remain under pressure.

On July 13, 2015, Claim Post announced that it had signed a Memorandum of Understanding (MOU) with both Hallow Water First Nation and the Incorporated Community of Seymourville regarding the Seymourville Silica Sand Project.

Gossan conducted initial testing of the Manigotagan material for use as frac sand in the spring of 2009. The analysis conducted by PropTester Inc., resulted in samples of various meshes consistently attaining ISO 9K Proppant ratings. Pressure conductivity tests have also been conducted on samples of the 40/70 and 70/140 mesh fractions with positive results.

Manigotagan silica sand has been subjected to a variety of other tests that indicate it is of a high purity with few contaminants and that it is similar to the silica sands previously quarried at nearby Black Island. Sizing, washing or other simple treatments significantly improve the purity. An analysis of 9 washed and scrubbed samples provided an average silica grade of 99.0% SiO2.

A drill program consisting of 23 holes was conducted at the 306-hectare Manigotagan Silica Property in December 2006. The drill program was successful in outlining the edge of two zones of silica sand with a thickness exceeding 8 metres and an average thickness of 11.5 metres. The ratio of overburden above the two zones of silica sand is less than 1:1.

In May of 2008, Gossan conducted a 26-hole sonic drill program to test the eastern border of the Property towards an open pit where the silica sand formation outcrops near surface; to assess the known area of the silica formation to the south; and to investigate the southern portion of the Property.

Drilling at Manigotagan has been successful in outlining substantial zones of silica sand with a thickness exceeding 5 metres and ranging to over 15 metres. Two zones, with lengths known to exceed 400m and 600m, are both open on one or more sides. The deposit has been outlined in three drill programs totaling over 60 holes.

Claim Post is now the owner and operator of the Manigotagan Property which is a significant component of Claim Post’s Seymourville Silica Sand Project. Gossan will continue to participate in the frac sand industry though an equity interest in Claim Post Resources, a property payment and advance royalty payments which are currently overdue, and a significant production royalty.