Field Evaluation Report: Copper Canyon Resources (CPY.V)
Copper Canyon Project, Galore Creek district, British Columbia

Michael Fulp
Posted Nov 23, 2007
Written Oct 16, 2007

Introduction

On September 15, 2007, I conducted a field evaluation of Copper Canyon Resources' Copper Canyon project in the Galore Creek district, northwestern British Columbia. I was accompanied by Tim Termuende, President and CEO, and Chuck Downie, Vice-President Exploration of CPY, and Andy Schwab, investor relations consultant. Danette Schwab, geologist for Nova Gold (NG), guided the examination. Nova Gold is presently earning a 60% joint venture interest in the Copper Canyon project from CPY.

Access to the property from Vancouver was via regular commercial air service to Smithers, followed by a four hour drive north on highway 37 to Bob Quinn and on to the Crow Camp staging area, thence a 30 minute helicopter ride southwest to Nova Gold's Galore camp. The mine site is located 70 kilometers west of highway 37 and 150 kilometers northeast of Stewart, British Columbia, a year-round concentrate shipping port. The terrain is extremely rugged and consists of steep ridges and glaciated peaks with hanging valleys, and braided glacial streams and rivers in broad, U-shaped, outwash valleys.

The field examination was brief and included a fly-over of numerous development and construction activities, including road and bridge building, tunneling, camps, staging areas, and drilling. This was followed by examination of core from three recent Nova Gold drill holes at Copper Canyon, a walking tour of the Galore camp, and an overlook of NG's Central Zone discovery gossan. The tour ended with a fly-over and field examination of the Copper Canyon discovery outcrop and flight back to the staging area.

Satellite image of Galore Creek district showing access, land positions, camps, and deposits referred to in text.

At the time of my visit, 667 people were working from six camps and 15 helicopters were in service. Galore Creek is the largest airlift and private mine development project in Canadian history with a capital expenditure budget of $2.0 billion, more than twice the entire 2010 Vancouver Olympics.

Nova Gold's Galore Creek feasibility study in October 2006 included a proven and probable reserve of 540 million tonnes grading 0.56% Cu, 0.30 g/t Au, and 5.3 g/t Ag. The total global resource is over one billion tonnes with 7.8 billion lbs Cu, 7.8 million oz Au, and 172 million oz Ag, more than $30 billion in contained metal. One of their primary exploration goals in summer 2007 was drilling CPY's Copper Canyon deposit to complete their 60% earn-in and expand and upgrade the resource. Twelve holes totaling 4940 m were drilled. With this program, NovaGold has completed its work commitment to earn 60% in the joint venture. It may acquire an additional 20% interest by paying Copper Canyon C$1 million and completing a feasibility study by October 2011.

Galore Creek district showing claim positions and joint ventures, porphyry copper-gold-silver deposits, and infrastructure including diversion dam and channel on ground covered by mineral claims of Copper Canyon Resources.

Exploration History

Copper Canyon was discovered in 1956 by geologists of American Metals Company in a helicopter reconnaissance program. They staked 71 claims on copper oxide-bearing gossans.

Copper Canyon discovery outcrop looking northwest to ridge above tail section of helicopter; green, blue, and black copper-oxides underlying rusty-brown iron oxide gossan.

Seven core holes totaling 1000 m with poor recovery were drilled in 1957. Two geophysical programs were conducted in the early 1960's. In 1988, Canamax Resources, the corporate successor, examined the deposit for its gold potential. In 1990, a junior exploration company, Consolidated Rhodes Resources, optioned the property, twinned three of the early holes, and drilled another 12 widely-spaced holes over three known mineralized zones. They dropped their option in 1992. Canamax merged to become Canada Tungsten in 1993 and the property lay dormant. In 2001, the claims lapsed and were immediately staked by prospector Bernie Kreft. Eagle Plains Resources acquired a 100% interest in the claims and in 2003 joint-ventured the property to Nova Gold. Since that time, 22 additional holes have been drilled by Nova Gold, including 12 in the summer 2007. In 2006, Eagle Plains spun the Copper Canyon property into a separate company, Copper Canyon Resources (CPY).

Copper Canyon Geology, Alteration, and Mineralization

The Copper Canyon deposit is an alkalic copper-gold-silver porphyry located in the Stikine Terrane of northwestern British Columbia. It lies six km east of Nova Gold's Galore Creek Central Zone deposit. Mineralization is hosted by Jurassic-Triassic alkaline volcanic and volcaniclastic rocks and intruded by multiple phases of syenite as dikes and a stock and magmatic-hydrothermal breccias. The K-Mg dominated alteration assemblage consists of potash feldspar, biotite, garnet, carbonate, sericite, anhydrite, and albite. Ore mineralization is chalcopyrite, lesser pyrite, minor sphalerite, and gold.

Drilling prior to 2005 defined a broad area of mineralization at least 700 meters by 400 meters that is open in all directions. The mineralization begins at surface to at least 300 m deep and occurs as a roughly 100+ meter thick zone of disseminated chalcopyrite and lesser pyrite. Recent drilling in 2007 (12 holes, 4940 m) by Nova Gold was designed to expand the known resource both laterally and to depth and also explore some of the numerous soil geochemical and geophysical anomalies that exist within the largely untested alteration halo.

Copper Canyon geology, drill holes, inferred mineral resource, and Cu-Au soil anomalies

Discussion and Recommendation

Reference should be made to my previous evaluation report on Copper Canyon Resources (published by Jay Taylor's Gold & Technology Stocks on April 5, 2007 and posted on CPY's website) for share structure, management, other properties, and company positives and negatives. Major project development at Galore Creek has occurred since the report was written with entry of Teck-Cominco as 50% partner with Nova Gold and their commitment to fund the first $500 million of capital costs. All permits are now in place and the project is slated for production in 2012.

Porphyry copper-gold deposits are commonly valued at 3-4 cents/lb copper equivalent in-the-ground. Copper Canyon Resources has a 43-101 inferred resource of 165 million tonnes at 0.74% Cu-eq equaling 2.68 billion pounds of copper at 0.35% cut-off. Given NG's 60% interest in the Copper Canyon project, CPY's 40% net is 1.07 billion pounds copper. This methodology predicts a strict, peer-based valuation market capitalization of $32-43 million. CPY has a current market cap of $45 million and it is fully valued based on this approach.

However, a strong case must be made that Copper Canyon should be valued much higher than most deposits of this type for the following reasons:

1). The Nova Gold-Teck Cominco JV will fund all capital costs for development of the Galore Creek deposit including access, power, slurry pipeline, water diversion, tailings dam, mine and processing equipment and infrastructure. Under the joint venture agreement, Copper Canyon Resources is carried to feasibility if NG-TCK elects to acquire 80% of the project. After that, CPY will be required to contribute 20% of the capital costs to develop the Copper Canyon deposit. They will not be required to contribute capital to other infrastructure costs such as access and power.

2). Recent drilling by Nova Gold has been successful in expanding the copper mineralization significantly, in particularly to depth 250 m below the discovery hole first drilled in 1957 and twinned in 1990 (CC-90-02 with 271 m of 2.41% Cu-eq). This hole (CC-07-33) is mentioned on NG's website and strong chalcopyrite mineralization is verified by my recent core examination. Assay results of all holes are expected within two months. In addition, numerous soil geochemical and geophysical anomalies remain untested in the alteration halo surrounding the presently defined resource.

3). The 43-101 resource estimate was completed in February 2005 using the following metals prices: $0.90/lb Cu, $375/oz Au, and $5.50/oz Ag. Given the secular bull market for commodities, these are very low base values for long-term metals prices. An updated 43-101 resource is expected in early 2008 and, because of recent drill success and major increases in two-year trailing average metals prices, CPY's net copper-equivalent resource is expected to increase significantly.

4). Copper Canyon has the highest gold grade of the seven porphyry deposits known in the district. Potential also exists for high grade gold veins along faults (e.g., 2005 drill hole with 2.5 m grading 50.6 g/t Au and 71.6 g/t Ag).

5). Nova Gold's mine plan anticipates a need for higher grade mill feed after year five of production at the Central Zone deposit. The Copper Canyon deposit has higher grade at 0.74% Cu-eq than other satellite deposits on NG's ground and logically would be mined next.

6). NG-TCK's Galore Creek feasibility study plans construction of a 1500 m-long water diversion channel and 18 m-high diversion dam structure in Copper Creek commencing in the second quarter 2008 with completion by year's end. These structures will divert surface runoff waters from the planned tailings area located directly downstream and must be completed before start of construction on the main tailings coffer dam in January 2009. These developments are on surface lands overlying the Copper Canyon mineral claims.

With the upcoming infrastructure development in Copper Creek and the prospects for a substantial, qualified resource increase in the near future, a probable scenario for Copper Canyon Resources is take-over by the Nova Gold-Teck Cominco joint venture in 2008.

In my opinion, Copper Canyon Resources is undervalued at its present market capitalization. I recommend Copper Canyon Resources as a moderate risk, mid-tier, junior stock at the current price of 90c. Target price is $2.00/share within the next 12 months.

Michael S. Fulp, M.S., CPG
Consulting Geologist
email: msfulp@attglobal.net

Disclaimer: I am a shareholder of Copper Canyon Resources and a paid consultant to the company.

321gold Ltd