Gold Division

For more than two thousand years gold's natural qualities have made it man's universal medium of exchange. No mineral has had more of an impact upon human history than gold; it has changed the fate of nations, caused wars, and ensured the peace. Chemically, however, gold, known by the chemical symbol Au , is simple and inert.

A "noble" metal which does not oxidize under normal conditions, gold is extremely soft and dense, and is the most malleable of the metals. While scarce, gold is found on every continent in thin veins scattered through mountains where granite and quartz have fused together over millions of years in cracks in the earth's crust. Gold is found in two principal locations: lode and placer (secondary) deposits. Lode, or primary, deposits are tabular shaped deposits formed between finite boundaries consisting of one or several veins. Placer deposits are secondary deposits where gold has been eroded, disintegrated, or decomposed from lode deposits into a depression.

Over the last 6,000 years gold has been mined throughout the world forming the basis for empires, and the foundation of economies. Over this period, more than 125,000 tons of gold has been mined; the vast majority of this production came after the California Gold Rush until which less than 10,000 tons had been mined in the entirety of human history. It was not until the establishment of a South American Spanish empire in the late 1700's that global gold production exceeded 10 tons, and not until the Australian and Californian gold rushes of the late 1840's that production exceeded 100 tons. Since the discoveries in South Africa in the 1870's and 1880's gold production ramped until it leveled in the postwar period. Over the last 25 years, however, and in the wake of a shift off the gold standard which saw price increases of nearly 1000% from 1971 to 1981, gold production has entered a boom phase. Production doubled from 1980 to 1990 reaching more than 1,700 tons. These production gains were partly due to improved mining exploration and recovery technologies and processes, and partly to some major world class discoveries. However, since its peak in 2001, gold production has begun to slowly decline, and many analysts predict a severe and worsening supply shortage in the future. This, of course, creates a favorable economic climate for those who are producing this valuable commodity.

Proposed Immediate Activity:

Talisman is presently concentrating its gold exploration efforts in South America, with particular emphasis on the countries of Peru and Guyana.

Mining has been a central element in Peru's history for thousands of years. The Andes are rich in minerals, and gold and silver pieces can be found in numerous pre-Columbian societies. Mineral exports are a key to the country's economy, representing nearly half of Peru's exports in 2000. Peru ranks eighth worldwide in gold production (first in Latin America), second in copper, and among the top 5 in lead and zinc.

Two of Peru's gold mines, Yanacocha and Pierina, are among the most productive and profitable gold mines in the world. Located high in the Andes Mountains of Peru, Yanacocha is the largest gold producer in Latin America. With three active open pits, since the mine opened in 1993 production has exceeded 26 million ounces which at today's prices equates to over US $33 billion. The Pierina mine is located in the Andean Cordillera in the Department of Ancash in north-central Peru, approximately 10 kilometers northwest of the city of Huaraz, at an altitude of approximately 4,100 meters. Pierina is an open-pit, truck-and-loader operation. In 2009 Pierina produced 271,000 ounces of gold which would be currently valued at just over US $350 million.

Peru has an estimated 21 million fine ounces of gold reserves in mines currently under operation and 42 million fine metric tons of copper reserves.

Mining activity and exports have grown exponentially since 1991, when the government adopted a series of new rules and tax benefits for large-scale mining, streamlined the process for filing a mineral claim, and allowed companies to re-invest upward to 80% of profits tax free. Mining exports grew from US $1.2 billion in 1987 to US $2.7 billion in 1997.

As of 2009, Peru's mining exports comprise 60% of Peru's total exports at $15.9 billion. It is anticipated that Peru's exports will rise 10% in 2010 due to the growing demand for commodities.

Guyana (once known as British Guiana) is one of the smallest of South American countries, and its only English speaking one.

Largely undeveloped and covered by rain forests, it is transitioning into a mining "hot spot." Statistics released by the Guyana Geology and Mines Commission (GGMC) for 2007 and 2008 indicate that actual gold production over the past two years exceeded budgeted production by 46,199 ounces and 30,387 ounces, respectively. In 2007, budgeted gold production was 200,000 ounces while actual production reached 246,199 ounces. In 2008, budgeted production was 230,000 ounces while actual production reached 260,387 ounces.

The GGMS's assessment of the mining sector indicates that gold production has enjoyed a significant run of success over the past 13 years, reaching 455.9 thousand ounces, the highest for the 13-year period. Last year's record earnings of more than $42 billion from the 250.4 thousand-ounce yield compared with earnings of just over $24 billion from gold yield of more than 450,000 ounces in 2001 reflects the significant continuous hike in gold prices in recent years.

Sustained increases in gold production over the past two years have been matched by a steady increase in the number of mining claims over the same period. Budgeted mining claims for 2007 totaled 9,900 while actual claims reached 10,563. In 2008 budgeted mining claims totaled 11,000 while actual claims reached 12,582. A total of 12,250 mining claims have been budgeted for this year.

Last year the small and medium-scale gold and diamond mining sector led the country in its percentage share of overall minerals production amassing 66.2% of total mineral production, 4.7% higher than in 2007.

Small and medium-scale gold and diamond mining employs more than 14,000 of the 15,660 employees in the local minerals industry and close to 100,000 persons are believed to be directly dependent on the mining industry for their livelihood.

In 2008 diamond declarations reached 168,925 carats, 100,000 carats less than the previous year, reflecting a realization of 56.31% of the target of 300,000 carats. In 2007 diamond production reached 268,925 carats, 59.2% more than 2008.

Gold Fundamentals:

The following were material factors in the company's decision to

enter the Gold Market:

1. Global currency debasement

2. Rising investment demand

3. Alarming financial deterioration in the U.S.

4. Negative real interest rates in reserve currency (U.S. dollar)

5. Dramatic increases in money supply in the U.S. and other nations

6. Existence of a huge and growing gap between mine supply and traditional demand

7. Mine supply is anticipated to decline in the next three to four years

8. Large short positions

9. Low interest rates discourage hedging

10. Rising gold prices and low interest rates discourage financial speculation on the short side

11. The Central Banks are nearing an inflection point when they will be reluctant to provide more gold to the market

12. Gold is increasing in popularity

13. Gold as money is gaining credence

14. rising geopolitical tensions

15. Limited size of the total gold market provides tremendous leverage

Summary:

Gold is under-valued, under-owned and under-appreciated. It is most assuredly not well understood by most investors. At the beginning of the 1970's when gold was about to undertake its historic move from $35 to $800 per ounce in the succeeding ten years, the same observations would have been valid. The only difference this time is that the present or existing fundamentals for gold are actually better.

The Company believes the place to be in these tumultuous times will be in precious metals. In times of economic uncertainty people will flock to gold and silver.