SUMMARY REPORT ON THE DX POLYMETALLIC PROPERTY

SUMMARY REPORT ON THE
DX POLYMETALLIC PROPERTY

LINXI COUNTY, INNER MONGOLIA
PEOPLE’S REPUBLIC OF CHINA

May 25, 2005

Prepared for

MAKAELO LIMITED
(a subsidiary of Sterling Group Ventures, Inc. ,
a Nevada company based in Vancouver, B.C.)

VANCOUVER, CANADA

By

Ruben S. Verzosa, P.Eng.
23064 – 50 ^th Avenue
Langley, B.C. V2Z 2R7

i

ii

SUMMARY

The DX Poymetallic Property, comprising two Exploration Licenses is located in the Da Hinggan Mountain area of Inner Mongolia in the People’s Republic of China. Aifeng Li, a Chinese national holds the mineral rights to the licenses, which in March 2, 2005 have been optioned to Makaelo Limited. Under the option agreement, Makaelo can earn 52% interest in a Sino-Foreign Joint Venture company by expending 5.2 million Chinese Yuan in exploration. The property comprising 2 licenses, the Donggou and the Xiaoxigou covers an aggregate area of 51.61 square kilometers. Access to the property is excellent, being only 25 km north of the town of Linxi. The climate in the area and excellent access would allow for year round operations

History

The history of the property is related to the exploration of the Dajing and Xiaochengzi polymetallic mines when during the years 1957 to 1993, the Chinese government carried out a multi-staged exploration program in the vicinity of the two mines consisting initially of geological mapping at various scales and mineral prospecting. The next stage of exploration and development work during 1978 to 1993 consisted of trenching, shaft sinking and related underground operations and extensive surface diamond drilling reportedly amounting to more than 170 bore holes. It was also during this period when detailed geological, geophysical and geochemical investigations were conducted in the Dajing mine vicinity including areas now covered by the Donggou and Xiaoxigou licenses. Most of the geochemical surveys were reportedly stream sediment surveys while geophysical surveys consisted of airborne magnetic and gravity surveys as well as detailed Gradient IP surveys.

General Geology

The Dajing mine area and the DX Property lie in the southern part of the Da Hinggan Mountain area in Inner Mongolia. A northeasterly Permian basin containing a thick sedimentary succession of non-marine fine to medium sandstone, shale, slates and other meta-sediments dominates the regional geology. The basin is bounded on the southeast by Silurian gneiss and other metamorphic rocks as well as Jurassic lavas and tuffs and on the northwest by Jurassic to Upper Cretaceous acidic lavas and tuffs. Mesozoic granitic and dioritic stocks and batholiths intrude the entire region. The dominant structural trend is northeast to northwest. Locally, and in the general vicinity of the property the structural trend is northeast dominantly characterized by a synclinorium whose major axis traverses the Xiaoxigou license. Several tight folds have formed more extensively on the west flank of the synclinorium suggestive of a tectonic transport from the northwest. The Permian sedimentary units hosts the hydrothermal vein deposits in the Dajing and Xiachengzi mines. The veins carry complex ores mainly of chalcopyrite, iron-rich spahalerite, galena, pyrite, arsenopyrite, cassiterite and macasite with minor tetrahedrite and boulangerite. Gangue minerals are quartz, chlorite, sericite, dolomite and calcite with minor toumaline and fluorite. Wall rock alteration consisting of chloritization, silicification, sericitification and calcification is usually limited to less than 2m into the host rock There are 130 discrete vein deposits at the Dajing mine ranging in strike length between 100 to 1200m, down dip extension of 200 to 700m and true widths from 0.12 m to greater than 15 m. Most veins are between 0.50 to 1.50 m wide. The veins are sub-parallel and close together with dips from 45° to 65° northwest and strikes from 290° to 325°.

Conclusions and Recommendations

1

INTRODUCTION AND TERMS OF REFERENCE

On April 19, 2005, the author in the company of Dr. Liu Hongtao of the Beijing Institute of Geology and Geophysics and Richard Shao and Raoul Tsakok, both of Sterling Group Ventures, Inc. of Nevada, USA, visited the DX Property in Inner Mongolia. The property comprising a total of 51.61 km ² in two adjacent exploration licenses is owned by Aifeng Li, a Chinese national. In March 2, 2005, Makaelo Limited, a BVI Company and a subsidiary of Sterling Group entered a Joint Venture Agreement with Aifeng Li to develop the DX Property. The property is within 2 km of two operating mines, the Daijing and the Xiaochengzi both producing copper, lead and zinc concentrates. In open lands between the DX Property and the operating mines are located several independent small shafts used to extract copper, lead and zinc ores for custom milling at the Daijing concentrator.

The purpose of the author’s visit to the DX Property was to evaluate the surrounding geology and the infrastructure in preparation for an independent technical report that would, if warranted include recommendations for an exploration program.

Sources of Information

This summary report is largely based on Chinese government geological and geophysical exploration data acquired through the assistance of Dr. Liu Hongtao of the Institute of Geology and Geophysics of the Chinese Academy of Science in Beijing. Other sources of information are published information in the public domain particularly in reference to the geology of northern China. The author spent one day on the DX Property and immediate vicinity studying the geology of the area and its relevant infrastructure with the help of Dr. Liu Hongtao.

Disclaimer

The author made extensive use of written and verbal technical information provided by Dr. Liu Hongtao in the preparation of this report all of which he considers reliable. While some of the maps showed great detail only a few modifications were made mainly due to time constraints. Further more, he takes the English translation of the JV agreement between Makaelo Limited and Aifeng Li on a ‘per se’ basis.

PROPERTY DESCRIPTION AND LOCATION

Property Location

The DX Property is located near the central part of Inner Mongolia, PRC. It is within Linxi County and some 25 km north-northeast of the town of Linxi, which is about 375air kilometres north-northeast of Beijing. The property is approximately centered at North Latitude 43° 47’ and East Longitude 118° 12’, (see Figure 1) .

Figure 1. Location Map

2

Property Description

The DX Property consists of two contiguous Exploration Licenses, the Donggou covering 29.52 km ² and the Xiaoxigou covering 22.09 km ² . The configuration of the property is shown in Figure 2 and the licenses are listed in Table 1 .

Table 1: Exploration Licenses Comprising the DX Property

Certificates of government approval on the two licenses are appended with this report.

Joint Venture Agreement

On March 2, 2005, Makaelo Limited and Aifeng Li entered a Joint Venture agreement for the formation of a Sino-foreign Cooperative Company. In the agreement, Aifeng Li contributes the Donggou and Xiaoxigou licenses and all technical data with a deemed value of 4.8 million Chinese Yuan to earn a 48% interest in the Cooperative Company and Makaelo Limited contributes 5.2 million Chinese Yuan in exploration expenditures