MineGem Inc. — Regulatory Filings 2001

Aug 23, 2001

Form 27

SECURITIES ACT (Ontario)

MATERIAL CHANGE REPORT UNDER SECTION 75(2) OF THE ACT

NOTE : This form is a guideline only. A letter or other document may be used if the substantive provisions of this form are complied with.

WHERE THIS REPORT IS FILED ON A CONFIDENTIAL BASIS PUT AT THE BEGINNING OF THE REPORT IN BLOCK CAPITALS “CONFIDENTIAL——S.75”.

ITEM 1 —— Reporting Issuer:

State the full name and address of the principal office in Canada of the reporting issuer.

MineGem Inc. 121 Richmond Street Toronto ON M5H 2K1

ITEM 2 —— Date of Material Change :

August 17, 2001

• ITEM 3 —— Press Release:

State the date and place(s) of issuance of the press release issued pursuant to section 75(1) of the Act.

A press release in respect of the material change was disseminated on August 20, 2001 through BCE Emergis – Toronto, Ontario.

ITEM 4 —— Summary of Material Change: Provide a brief but accurate summary of the nature and substance of the material change.

The material change is fully described in the Company’s press release attached hereto as Schedule “A”, which press release is incorporated herein.

ITEM 5 —— Full Description of Material Change:

Supplement the summary required under Item 4 with the disclosure which should be sufficiently complete to enable a reader to appreciate the significance of the material change without reference to other material. Management is in the best position to determine what facts are significant and must disclosure those facts in a meaningful manner. See also Item 7.

This description of the significant facts relating to the material change will therefore include some or all of the following: dates, parties, terms and conditions, description of any assets, liabilities or capital affected, purpose, financial or dollar values, reasons for the change, and a general comment on the probable impact on the reporting issuer or its subsidiaries. Specific financial forecasts would not normally be required to comply with this form.

The above list merely describes examples of some of the facts which may be significant. The list is not intended to be inclusive or exhaustive of the information required in any particular situation.

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The material change is fully described in the Company’s press release attached hereto as Schedule “A”, which press release is incorporated herein.

ITEM 6 —— Reliance on Section 75(3) of the Act:

If the report is being filed on a confidential basis in reliance on section 75(3) of the Act, state the reasons for such reliance.

The report is not being filed on a confidential basis.

INSTRUCTION:

Refer to section 75 of the Act and to the Regulation concerning continuing obligations in respect of reports filed pursuant to section 75(3) of the Act.

ITEM 7 —— Omitted Information:

In certain circumstances where a material change has occurred and a material change report has been or is about to be filed but section 75(3) of the Act will no longer or will not be relied upon, a reporting issuer may nevertheless believe one or more significant facts otherwise required to be disclosed in the material change report should remain confidential and not be disclosed or not be disclosed in full detail in the material change report.

State whether any information has been omitted on this basis and provide the reasons for any such omission in sufficient detail to permit the Commission to exercise its discretion pursuant to section 140(2) of the Act.

The reasons for the omissions may be contained in a separate letter filed as provided in section 4 of the Regulation.

No information has been omitted.

ITEM 8 —— Senior Officers:

To facilitate any necessary follow-up by the Commission, give the name and business telephone number of a senior officer of the reporting issuer who is knowledgeable about the material change and the report or an officer through whom such senior officer may be contacted by the Commissions.

David Jones, Chairman 121 Richmond Street Toronto ON M5H 2K1

ITEM 9 —— Statement of Senior Officer:

Include a statement in the following form signed by a senior officer of the reporting issuer:—

The foregoing accurately discloses the material change referred to herein.

DATED at Toronto, in the Province of Ontario, this 20th day of August, 2001.

" David Jones " David Jones

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SCHEDULE "A"

MINEGEM INC. NEWS RELEASE

DATED: August 20, 2001 Toronto, Ontario

FOR IMMEDIATE RELEASE CONTACT: DAVID JONES +1 416 214 4884

• POSITIVE FEASIBILITY STUDY RELEASED

• FOR NEW LIQHOBONG MINE • PROJECT IRR 39%

• PROJECTED PRODUCTION - 290,000 CARATS PER YEAR

MINGEM INC. (YGL-CDNX) (“MineGem” or the “Company”) is pleased to announce that its wholly owned subsidiary Liqhobong Mining Development Company (Pty) Ltd (“LMDC”) has received a positive feasibility study (the “Study”) on its Liqhobong Satellite Pipe Project in Lesotho. It confirms the viability of building a new open pit mine at Liqhobong. The Study was completed by Bateman Engineering Limited (“Bateman”) and SRK Consulting (“SRK”), two recognized independent South African engineering firms.

FEASIBILITY STUDY SUMMARY

The Study concluded the following:

• Average recovered grade 69 carats per hundred tonnes

• • Average diamond value US$41.24 per carat • Revenue per tonne treated US$28.46 • Total indicated resources 1.40 million tonnes • Annual mining rate 420,000 tonnes per year • Annual diamond production 290,000 carats per year • Capital cost US$7.5 million • Operating cost US$13.60 per tonne treated • Operating margin US$14.86/tonne treated • Construction period 7 months • Project internal rate of return 39% • Project net present value US$4 million

The Study accuracy is considered by Bateman/SRK to be +/- 10%

The Study was completed in South African Rands in constant August 2000 Rands and was converted into United States Dollars using the posted exchange rate at that date of ZAR6.90 = US$1. The current exchange rate is approximately ZAR 8.25 = US $1

The IRR and NPV calculations are based on project DCF calculations, and exclude any sunk costs.

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The following provides a summary of the individual aspects of the Study:

MINERAL RESOURCES AND RESERVES

The Study estimated the Diamond Resources using the terms defined in the South Africa Code for Reporting of Mineral Resources and Mineral Reserves (The SAMREC Code) effective March 2000 as prepared by the South African Mineral Resource Committee (SAMREC) under the auspices of the South African Institute of Mining and Metallurgy, with an effective date of March 2001, as follow ~~s:~~

Resource Category	Tonnes (x1000)	Recovered Grade cpht*	Carats (x1000)
Indicated Diamond Resource
Above 2525m elevation	1,402	68.7	963.2
Inferred Diamond Resource
Below 2525 to 2400m elevation	1,071

*cpht = carats per hundred tonne with a bottom diamond size of 1mm

The key assumptions, parameters and methods used to estimate the diamond resources are based on the geology and exploration of the Satellite Pipe. The Satellite Pipe consists of two lobes in the shape of an overall inverted “L”, with the approximately 100 m long and 50 m wide main or western lobe orientated N-S, and the eastern lobe, which joins the main lobe at the north end, and which is 100 m long and 50 m wide in an E-W direction. Both lobes taper inwards with depth at 65-75°. The main or western lobe, and part of the eastern lobe, are exposed in an existing shallow pit and are being exploited by indigenous miners.

The resources have been evaluated over 100 m from the bottom of the existing open pit workings based on 29 core holes with a total of 2,963.5 m of drilling. This includes seven holes drilled under SRK’s direct management to check for kimberlite-wall rock contacts and for geotechnical observations. These refined the details of the shape of the deposit and the resulting resources. SRK were satisfied with the status of the core and confirmed the geological contacts as logged in the drill holes.

The grades were determined from a bulk sample of 8,871 tonnes from which 6,096 carats of diamonds were recovered for a recovered grade of 68.7 cpht.

The lower elevation limit of the indicated resources (and the probable reserves derived from them) is 2,525 metres elevation, above which in the opinion of Bateman and SRK, there is "reasonable coverage of the pipe". The inferred resources are located below that level where there is less data. The Study notes that "despite the variability in the results no significant systematic grade differences in the pipe were observed from the microdiamond data. In line with the findings in other diatreme facies kimberlite pipes the orebody appears to be fairly homogeneous."

Based on the Whittle optimisation, initial pit design and the mining schedules used in the Study, the probable mineral reserve for the Satellite Pipe at Liqhobong was determined in accordance with the SAMREC Code. This includes a mining dilution of 1% and a mining recovery of 98%.

Bateman / SRK have applied appropriate factors for realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors to generate the mining plan and schedule for openpit mining of the probable mineral reserve as follows:

Factor	Probable Diamond Reserve*		Factor	Production Schedule
Probable Reserve (tonnes)	1,386,000		Ore mined (tonnes)	1,262,000
Diluted grade (cpht)	68		Bottom elevation (mamsl)	2,530
Contained diamonds (carats)	942,000		Total waste (tonnes)	1,380,000
			Strip ratio:	1.09

• Contained in the indicated diamond resources

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The Study was prepared under the direction of Roger Falls, BSc., MSAIMM in his capacity as Executive Director of Bateman Minerals and Metals and H.G. Waldeck (Pr.Eng., B.Sc.Eng, MSAIMM) of SRK. The resources were estimated by Mr. V. Simposya (M.Sc, MSAIMM) of SRK, a mining geologist with 20 years experience in the applications of computerised modelling for the evaluation and mine planning of geological ore bodies. He specialises in geostatistical and resource modelling and has experience in Zambia, Botswana, South Africa and Lesotho. The authors of the Study are independent of MineGem.

The authors of the Study have verified to the extent possible the data disclosed, including sampling, analytical and test data underlying the information contained in their report. They were limited in their ability to verify the results of the micro-diamond sampling used to establish the resources as the nature of micro-diamond sampling leaves no material for further analysis for verification. The original micro-diamond sample results were prepared by Lakefield Research at Lakefield, Canada and duplicates confirmed by Scientific Services, an independent laboratory in South Africa. The final grades used in the Study were based on a bulk sample for which the results were independently verified during the bulk-sampling programme by Fluor Daniel, an international mining engineering house, but could not be verified further by SRK or Bateman due to the nature of such bulk samples.

It is believed that the diamond resources and diamond reserves are not materially affected by any known environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues.

Diamond resources which are not included in the diamond reserves do not have demonstrated economic viability.

THE RECONCILIATION REPORT

These resources and reserves were not been prepared in accordance with the definitions of mineral resources and mineral reserves in National Instrument 43-101.

Mr. Valasquez Spring, Senior Geologist with Watts, Griffis and McOuat Limited, Toronto prepared a reconciliation of the resources and reserve estimates, and dated May 2 ,2001 and stated that:

“In that the definitions in the SAMREC CODE for the categories of Indicated Resources, Inferred Resources and Probable Reserves are identical in effect to those in the Definitions adopted by the CIM Council August 20, 2000 as referred to in NI 43-101, then the Resources and Reserves Statements as quoted above from the Bateman/SRK are the same as those as would be made under NI 43-101.”

MINING OPERATIONS

The Company proposes that a contract will be let for the mining. This will use standard drill, blast, load and haul equipment and procedures for an open pit. Based upon the mining schedules derived from the Study, Bateman received a written quote from a mining contractor of US$7.42 per tonne of ore (primary crushed to –100mm) delivered to the plant stockpile.

PROCESS PLANT

The process plant, designed for a headfeed rate of 60 tonnes per hour, consists of the following: Stockpiling, conveying, scrubbing and screening, secondary crushing, dense medium separation, recrush crushing, drying, X-ray diamond recovery, handsorting, water supply, tailings disposal, slimes disposal, maintenance facilities, and security systems.

The total cost of the process plant is estimated to be US$3.17 million with the process plant operating costs estimated at US$3.78 per tonne treated.

INFRASTRUCTURE

The infrastructure for the project includes the following:

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Accommodation and amenities, electrical supply and reticulation; water supply, vehicles, communication systems, sewage reticulation and treatment, as well as safety and paramedical facilities.

The basic philosophy for the project manning structure is that only single-status accommodation would be offered to employees. All employees would work on a 21day on, 7 day off cycle.

The power supply to the process plant and all of the infrastructure would be by diesel driven generating sets, with a total installed capacity of 1,200kW.

Water supply would be from the Liqhobong stream and the Motete River. A three stage pumping system would ensure that there is always an adequate supply of water at the lowest operating and capital costs.

The vehicle complement allows for all necessary personnel transport, maintenance and emergency requirements. A medical clinic would be built on site.

The overall capital costs for the infrastructure are estimated at US$2.51 million with the operating costs associated with the infrastructure estimated to be US$1.83 per tonne treated.

MANPOWER

The Study recommends that LMDC employ a total of 73 people for the Mine, with an additional 19 contractor employees with the infrastructure providing accommodation and amenities for up to 75 people on site at any one time.

ENVIRONMENTAL IMPACT ASSESSMENT

An Environmental Impact Assessment (“EIA”) formed an integral part of the Study. One of the main conclusions and recommendations of the EIA was that local communities and the people of Lesotho will benefit in many ways from the development of the Mine including, job creation, skills development, improved infrastructure and increased revenu ~~es~~ to the Government of Lesotho.

All of the EIA recommendations have been incorporated into the Study and the capital and working cost estimates allow for the necessary funding of all the above recommendations.

The Government of Lesotho accepted the EIA and the associated Environmental Impact Management and Impact Mitigation Plan on December 3, 2000, and therefore, all environmental pre-conditions to the immediate development of the project have been satisfied. The Study states that there are no environmental fatal flaws to the project if potential impacts are managed to acceptable standards.

PROJECT IMPLEMENTATION

The overall project execution plan is expected to take seven months up to the completion of the construction phase and an additional two weeks to complete the plant commissioning.

MineGem estimates that full production could be attained within nine months following a decision to proceed with the project.

The total project implementation costs, including the engineering, procurement, construction and management contract as well as all pre-production costs, are estimated at US$1.41 million. The Study has recommended a project contingency of 8%.

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ECONOMICS

The Study includes an economic evaluation on the open pit mining of the probable reserves as follows:

IRR	38.9%
NPV at 8%	US$ 4,136,420

The mine and its infrastructure has been laid out so as not to sterilise any of the resources, and has been designed such that the Company can mine and extract diamonds from the inferred resources. However due to the uncertainty which may attach to inferred mineral resources, it cannot be assumed that all or any part of the inferred mineral resources will be upgraded to an indicated or measured mineral resources or will be extracted as a result of continued exploration.

CONCLUSIONS

The Study has indicated that LMDC could successfully construct and operate a new diamond mine at Liqhobong in Lesotho.

Parts of this press release have incorporated information required pursuant to the MRRS Decision Document dated August 17 ,2001 Made in the Matter of the Securities Legislation of Alberta, British Colombia and Ontario and in the Matter of the Mutual Reliance Review System (MRRS) for Exemptive Relief Applications and in the Matter of MineGem Inc.

For further information, please contact:

David Jones: Chairman

Telephone: +1 416 214 4884

Issued and Outstanding – 42,464,968 shares

This document may contain or refer to forward looking information, including reserve and resource estimates, estimates of future production, exploration and mine development, unit costs, costs of capital projects and timing of commencement of operations and estimates of market conditions, and is based on current expectations that involve a number of business risks and uncertainties. Factors that could cause actual results to differ materially from any forward looking statement include, but are not limited to, failure to establish estimated resources and reserves, the grade and recovery of ore which is mined varying from estimates, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors. Forward-looking statements are subject to significant risks and uncertainties, and other factors that could cause actual results to differ materially from expected results. Readers should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date hereof and we assume no responsibility to update them or revise them to reflect new events or circumstances.

The Canadian Venture Exchange has neither approved nor disapproved the information contained herein.