ENVIRONMENTAL CONSIDERATIONS

The environmental information has been primarily taken from the January 2003 Scoping Study and represents a summary of the Company's understanding of the permitting process.

The project property (as defined by property boundaries for the mineral/surface rights Emgold has obtained) is located primarily between the Idaho-Maryland Road, Brunswick Road, and State Route 174 in Nevada County, California, and comprises approximately 2,750 acres in T16N R9E (portions of Sections 19, 29, 30, and 31) and T16N R8E (portions of Sections 23, 24, 25, 26, 36).

The Idaho-Maryland mine lands are located within the City of Grass Valley and in unincorporated county lands that are designated to be annexed by the city. Other project lands, including the New Brunswick shaft, are on Nevada County lands, not yet scheduled to be considered for annexation between 2000 and 2005. Certain administrative procedures will therefore need to be completed by the city to allow the project property to be developed for mineral extraction:

· General Plan Amendment

· Zoning Designation Amendment

· LAFCo Process.

Such actions require a land use permit application be submitted to the Lead Agency, which will trigger the environmental assessment process required by the State of California as defined in the California Environmental Quality Act (CEQA). Other applicable state and federal environmental regulatory requirements are also addressed, as outlined in Section 7.3.

In the mid-1990s, Emperor, a subsidiary of Emgold, applied to the Nevada County Planning Department for a use permit to dewater and subsequently explore and sample the existing workings of the Idaho-Maryland Mine. On 25 January 1996, the Nevada County Planning Department certified the Environmental Impact Report (EIR) prepared in accordance with CEQA, and issued a conditional use permit. In accordance with the permit, the project was to have commenced by 25 January 1998 with completion of dewatering, exploration, and post-project activities by 25 January 1998.

To support dewatering activities, Emperor Gold applied for National Pollution Elimination Discharge System (NPDES) permit with the California Regional Water Quality Control Board, Central Valley Region (CVRWQCB). On 3 May 1996 a permit was issued allowing Emperor to dewater the Idaho-Maryland mine. The permit was valid for a period of five years and expired on 3 May 2001.

The following environmental laws are applicable to the proposed project: the California Environmental Quality Act (CEQA, 1970), Surface Mining and Reclamation Act (SMARA, 1975), Clean Water Act (CWA, 1972), and Clean Air Act (CAA, 1972). These laws, their respective purposes, and their applicability to the project are briefly described below.

CEQA is regarded as the foundation of environmental law and policy in California. Its primary objectives are to disclose to decision-makers and the public the significant environmental effects of a proposed development and identify ways to avoid or reduce environmental damage. Typically, when a Lead Agency is notified of a project, the CEQA process is initiated with consideration of the proposed project's environmental characteristics. Because the proposed Emgold project involves reopening a mine that has been inactive for approximately 50 years, for which minimal reclamation, if any, has been performed, an Environmental Impact Report (EIR) will most likely be required under CEQA.

SMARA was enacted to respond to the need for a continuing supply of mineral resources, while preventing damage from mining activities to public health, property, and the environment. The following activities are subject to SMARA: prospecting and exploratory activities, dredging and quarrying, streambed skimming, borrow pitting, and stockpiling of mined materials.

Mining may begin after the lead agency approves the mining permit and a plan for returning the land to a usable condition; this plan is referred to as Reclamation Plan and is required for surface and subsurface mining operations. In addition, a prerequisite to mining activities is the applicant's proof of financial assurances to guarantee costs of reclamation (e.g., surety bonds, irrevocable letters of credit, or trust funds).

Because the proposed Emgold project involves reopening a mine that has been inactive for approximately 50 years, for which minimal reclamation, if any, has been performed, a reclamation plan will need to be prepared for the project in accordance with SMARA. In addition, reclamation plans will need to be prepared for any activities concerning exploratory surface or subsurface mining; and/or stockpiling quantities of material greater than 1,000 yd3; and/or disturbing more than one acre of land.

The Clean Air Act (CAA) was first passed to improve the air quality in the United States and has subsequently been amended to set limits on the discharges of certain pollutants.

The CAA includes a permit program for larger stationary or non-point sources that release pollutants into the air. These can include cars, trucks, other motor vehicles, consumer products, and machines used in industry.

CWA was enacted to restore and maintain the quality of U.S. waterways. The General Permit includes provisions for developing a Storm Water Pollution Prevention Plan (SWPPP) to maximize the potential benefits of pollution prevention and sediment and erosion control measures at construction sites.

In the case of the Idaho-Maryland project, the planned surface activities (exploratory mining and stockpiling) for areas greater than one acre will be subject to the NPDES (National Pollution Discharge Elimination System) and SWPPP processes to ensure they are performed in a manner that is protective of Wolf Creek.

As there are exploratory activities and stockpiling of mined materials envisioned for the project, these activities and the necessity to plan for the mine's reclamation require that SMARA be addressed in the permitting and CEQA processes. The CWA, CAA issues can be fully addressed in the context of the CEQA analysis but may require that individual permits for certain mine operations be obtained from the administering agency. Because the proposed mine site is located between two reaches of Wolf Creek, the regulatory requirements for waste streams generated from the mine operations will focus on compliance with CAA and CWA.

There are two aspects to the project that need to be addressed in the permitting process:

1. those requirements for an exploratory phase that will facilitate confirmation of the mineral resources and
2. those requirements for the development of the mineral resources.

The exploratory phase may be designed to be exempt from some regulatory requirements for the full-scale development of mineral resources. However, because the exploratory work is part of a larger-scale project, the lead agency may elect to combine both project phases into one permit process.

Both of the project phases require a zoning designation and general plan amendment either from the city or county to allow for surface mining operations. Such actions require the land use permit application be submitted to the lead agency and initiate a CEQA process. Specific requirements for each project phase are summarized below.

The scope of the exploratory work may entail drilling exploratory boreholes from up to six locations (with several drill holes at each location) and limited surface mining from shallow deposits in the Idaho-Maryland mine to confirm the extent of mineral resources. In accordance with conversations with representatives of Nevada County the proposed mine site is zoned and designated in the General Plan for Business Park (BP) development. Unlike that designation for the city, the county designation allows subsurface mining but does not allow surface mining. Therefore, a zoning and general plan amendment may be required to allow for surface exploratory mining (from a BP designation to an AG, FM, M1, or M2 designation). Such an action would require an application for a development or "use" permit.

In addition, if the extent of the exploratory work included only surface drilling at up to six locations, the work could be undertaken with the landowners' consent with one permit. However, depending on the locations of the boreholes, there may be issues associated with the disturbance of private water wells and noise associated with drilling that would require review under CEQA. That CEQA review might involve the preparation of an Initial Study and Negative Declaration (IS/ND) and take between three to six months to complete, including the zoning and general plan amendments.

According to the county representatives, if the surface area to be disturbed is less than one acre and involves less than 1,000 yd3 of material being processed off-site, a reclamation plan would not be necessary under SMARA (considered to be a CEQA action in its own right) and may be an allowable action with a grading permit (which would take up to six weeks to obtain). However, since a "use" permit would be required to allow for surface mining, a CEQA review would be initiated in accordance with the county's Grading Plan requirements that may take between three to six months to complete.

The first step in the permit process is filing a completed development or "use" permit application with either the city or county. Before a permit may be approved, the environmental issues associated with the project development must be addressed and would include, at a minimum:

· Preparation of an Environmental Impact Report (EIR) in accordance with CEQA

· Preparation of a Reclamation Plan in accordance with SMARA

· Application for and issuance of a Discharge Permit for mine dewatering from the CVRWQCB in accordance with the CWA

· Application for and issuance of an NPDES-permit from the CVRWQCB in accordance with the CWA

· Application for and issuance of either a permit to construct or Title V permit from the NSAQMD in accordance with the CAA.

· Land Use Issues - General Plan Amendments, Zoning Amendments, Local

· Noise - Use of explosives, equipment use

· Traffic and Circulation - Direct (mine) and indirect (service) employees (trucks, vehicles)

· Air Quality -- CAA/ dust generation, non-point sources (machinery/ vehicles)

· Cultural Resources - Potential prehistoric and historic sites

· Geology - Potential for subsidence

· Hydrogeology - Effects of dewatering (viability of private wells)

· Surface Water and Water Quality - use of and potential exposure to hazardous substances/materials, CWA, NPDES/SWPPP

· Biology - Riparian habitat, migratory birds, streambed alteration, if any, as a result of being proximate to Wolf Creek

· Visual - Construction of mine operations area (ore, transfer facilities), development of stockpiles, office buildings for employees

· Public Services - Police, fire, sewer, water, electrical to support mine operations (LAFCo)

· Public Health - Use of explosives, effects of subsidence (if any), use of and potential exposure to hazardous substances/materials.

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