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Orex Exploration Inc. (TSX-V: OX)

       Orex Exploration Inc. is a Canadian-based gold mining exploration and development company listed on the TSX Venture Exchange (ticker symbol OX) (Frankfurt: O5D). The risk-reward characteristics are highly advantageous for investors establishing a long position in OX.V as their high-grade 800,000oz gold deposit at their 100% owned Goldboro Property in Nova Scotia, Canada is poised to sizably increase upon validation of their new geological model. It appears OX.V is highly undervalued relative to the inherent nature of the Goldboro property and its potential. Equally as important, Orex has a highly experienced and talented management team (see management review below) dedicated to maximizing shareholder value.

       Orex's Goldboro project located in Guysbourough county Nova Scotia (on the N.E. tip of the mainland, approximately 185 kilometres northeast of Halifax), consists of 37 contiguous claims (600 hectares), in which Orex holds a 100% interest. The property is accessible by a 2.5 kilometre gravel road from the paved, all-weather Highway 316 which links the village of Goldboro to the town of Antigonish.

       This August Orex released a 43-101 resource report at the 60% mark of their planned drilling (Orex has completed 12,000m out of an original 20,000m planned). The report was originally commissioned and designed to be stepping stone, providing a snapshot in order to determine how to best proceed. In the process of analyzing the data Orex decided to take a different tact, one they believe will be more beneficial for the company down the road. It was recommended and agreed that Orex changed focus from a high tonnage resource model to a new model that focuses on more economic parts of property with a higher grade cut-off and a new model that employs structural high-grade domains of gold that quantifies gold in zones around and between slates.
 

       The current estimated gold resource under the new higher-grade cut off is ~800,000oz (397,200 gold ounces measured & indicated, 405,926 gold ounces inferred) -- This resource number is expected to be dramatically revised upwards as the latest resource estimate had to attribute 0 values for these structural high-grade domains of gold between slates under 43-101 regulations until assay data confirms what geologists have identified and understand to be there. Additionally, new drilling along an additional 1 km strike length, infill drilling, and bulk sampling will also contribute to validating the new model and provide a large increase in the gold resource estimate.

       One of the unique features of the Goldboro property, which has been problematic in past attempts at defining the resource, is that Goldboro has a 'nugget effect' - the gold isn’t uniformly distributed in the slate belts and there is an inordinate amounts of visible gold, chunks of gold, on the property. Protocols agreed upon by the geologists recommending the new model have solved issues necessary in quantifying the gold and a new mineral resources estimate at the completion of the next series of drilling and bulk sampling will incorporate the information.

The current drilling campaign is chopped up into five separate phases; A, B, C, D, & E - The now completed AB&C drilling programs were on the eastern part of the property where the historical ramp is located, that’s where most of the drilling has occurred to date and east of that ramp area. The D&E programs are planned to look more on the western part of the property where a lot of historical drilling hasn’t been done.

Before the shift in focus
The old 2006 43-101 technical report was based mainly on drilling over the ramp area over a 225m strike. From the ramp area Orex derived good results and published numbers whereby a large portion was reconciled to pre 43-101 numbers resulting in high tonnage low grade amounts (~30M tonnes of 0.6g/t). They had sort of a hybrid report in 2006 with some high grade material (~235,000oz gold) on the ramp and then there was some high tonnage low grade material for the rest of the property.
 
The Shift in Focus
Intuitively the hybrid report didn’t make sense because we know that Goldboro had produced at somewhere between 4.6 and 6.6g/t back in the early 1900s and it is a nuggety high-grade gold. What Orex discovered in the exercise they just completed after drilling Phase C and going through the numbers and putting together various models is that it made more sense to chop away a lot of the marginal mineralization and focus on the economic and high grade material.
 
Orex honed down the resource estimate, eliminated a lot of tonnage, and increased the cut-off grade significantly from .5 to 1.5. Using that criteria Orex was able to see how they can have an economic deposit at that higher cut off and from the data available produced the new 2009 resource estimate yielding ~400Koz measured and indicated grading about 4.5g/t and another ~400Koz in the inferred at close to 4 g/t. This is all pure 43-101 information, it doesn’t reconcile to any of the previous non 43-101 data. With this new report they now have the proof that Goldboro is a high-grade deposit at those levels. Also in the process they had identified a number of high-grade zones on the property.
 
Looking Forward - There are two things Orex will be doing in the next coming months:
 
1) Drill to put the entire property in a 43-101 context
The numbers from the last report are for a 1.5km strike primarily on the eastern part of the property and that includes the ramp eastward to East Goldbrook. Orex will now drill out on the western part of the property on what’s called Doliver Mountain and West Goldbrook. Orex knows there are four high-grade zones there that replicate some of the zones they’ve intercepted on the eastern part of the property and it is Orex’s intention to drill that as well as some other areas and to put all that into a 43-101 context. Right now Orex has a portion of the property in 43-101 context, with the next report out they’ll have the entire property in a 43-101 context and Orex expects to have a significant amount of ounces added based on additional drilling.
 
2) Validate their model that captures domains of gold
When Orex looked at modeling the deposit they looked at the traditional slate belt modeling which looks at various zones; they are thin zones of high-grade gold and then you’ve got grey-wacky or sandstone, you might get a little bit of gold in that and then another belt of high-grade gold and so on. Orex looked at what the Australians do and they have in the Bendigo-Ballarat systems, in the state of Victoria, very similar deposits to this and they have models that capture domains of gold. So instead of just looking at individual slate belts (Orex has ~20 slate belts in 43-101 context right now), what Orex realizes now is that they have ‘zones of gold’ at Goldboro. If you add up four or five belts, even in between the belts you have gold mineralization, in many cases there could be something like 1g/t which is significant when you should expect nothing. So Orex did a different model of the deposit looking at these ‘domains like’ instead of just ‘individual slate belts with nothing in between them’. In looking at various domains Orex picked out four domains adding slate belts across the property, with validation these domains of gold will dramatically increase the amount of gold Orex can quantify. Orex requires better sampling from these zones to produce a compliant report as there are certain zones that historically were not sampled, because back in the 80s and 90s they didn’t know that these various zones existed so they sampled different parts of the core and didn’t sample the parts that Orex needs today to put that domain model into proper context. So unfortunately for many parts of these domains Orex was forced to give areas where they believe quite strongly that there is gold mineralization a 0 g/t value (because the independent firm signing off on it is required to assume it is 0). The geologists understand there is gold there, they just don’t know how much. From what is now understood from analyzing the last round of data is that the geologists agree with the new model, but are required to validate that model in all areas. Orex has to do some more drilling in those areas to establish 'proof positive' of gold -- the significance of this validation can not be understated, we asked people at Market Equities Research Group whom are familiar with the Bendigo-Ballarat systems in Australia what 'validation' means for Orex "when it comes to unleashing the potential of the model that quantifies these domains of gold 'validation' changes the picture quite dramatically from a numbers perspective and from looking at the deposit from not just as a series of little belts but as big areas of mineralized gold deposits -- that’s what Orex is going to try to prove in this current (new) part of the drilling campaign -- they are going to do two things; they're going to do an additional kilometer to the west and they are going to do some of this infill drilling to prove out their new model and when they come back to the market with another final 43-101 it will not have just the entire strength length but it will have all of that within the context of this large structural domain model.”

  
The Debate
Staying with the old high tonnage slate-belt model or moving to the new more economical model?
Orex decided not to produce a big number just for the sake of it because what they are trying to do is show that they have a high-grade deposit, they have an economically viable deposit and one that will take a much quicker step into production and that’s why they decided to focus on a higher cut off with a higher grade of gold per tonne. Even though if it is a smaller number it is a much higher quality number than what they had previously and than what many of their peers have – few have anything like Orex has now. The decision was based on what was recommended by industry experts to Orex. Orex has decided to demonstrate to the market that Goldboro is a high-grade deposit and it does have a significant amount of gold.
 
Bulk Sampling/Production
The bulk sampling is an important part of validating the model. Orex has a majority of infrastructure in place to initiate bulk sampling. According to Nova Scotia regs. they can do something like max. 10K bulk sample, but that can be increased if Orex gets special permission or give the reasons why, so Orex will likely try and do between 50,000 - 60,000 tones bulk sample. After that Orex will look at how they will put this into production, Orex is making the assumption now that they are going down that path and management is taking the steps necessary.
 
What is the word from the Company?
We requested the President of Orex, Mark Billings, to go on the record but given that the 43-101 report (official signed-off version of what we already know) is coming out in the next few days or weeks they are essentially in a black-out period and can not comment officially on the results.

How big will the final/next resource estimate be?

Mining MarketWatch Journal believes Orex will have a very substantial increase by doing those two things; 1) adding 1km of new strike – they are going to have 2.5km, are going to have 4 very high-grade zones that cover a good 60 to70m, they are going to have this new model hopefully that with the infill drilling will validate Orex's theories about the property. That’s exactly what the Australians do; they drill drill drill, take a bulk sample, do this ‘domain model’, drill and/or do another bulk sample and then produce. That’s what Orex is trying to do here and to eventually create value for their shareholders through demonstrating that this is an economic deposit regardless if its 1.5 or 2.5Moz but what Orex is trying to do is have it at a higher cut-off and focus on the more economic parts of the property. Their 43-101 report assumes gold is on average at a selling price of USD$750 – even then it is still quite good.

Mining MarketWatch observations and notes on region

With a very sizeable increase in the resource estimate looming, hopefully this will lead Orex to a path of a viable economic operating mine at some point. Should, down the road, Orex decide to take Goldboro to production it is worth noting that Mining MarketWatch has confirmed there is unused capacity mill wise in the area from troubled and dormant lead-zinc facilities which could be picked up and refurbished inexpensively. Additionally, Goldboro is located in a stable mining friendly jurisdiction, according to the Fraser Institute 'on par' with Ontario in terms of friendliness. Orex's President, Mark Billings, has met with the Nova Scotia minister responsible for mining and is in constant touch with the government folks, they are all very supportive of this project as is the local county.

Recent Releases of Significance for Orex Exploration Ltd.

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Claude Poulin, Director, Mr. Poulin, chartered accountant and income tax specialist, is an independent consultant since 1998. From September 1979 to August 1998, he was associate and director of the income tax department for KPMG in Rouyn-Noranda.

For more information contact Orex Exploration Inc.'s head office: Ph (514).296-1641

E-mail: mark@atwaterfin.com    Company's web site: www.orexexploration.ca

SEDAR Filings: URL