Drake Gold Resources: Building The Southern Mining Exploration Joint Venture

The Southern Mining Exploration (SME) Joint Venture comes at the outset of an exciting time for Drake Gold. With an eye toward good corporate governance, we have faced this year of strategic challenges with confidence. Confident because of the opportunities we have uncovered in a process we are continually working to make more transparent. With this in mind I wanted to spend some time explaining a bit about this joint venture and how it came to be.

At the end of 2006, a prospector named Jan Yarrington met with me and discussed what he considered to be a gold strike zone in Georgia. He made a variety of suggestions on how we could prove up resources and what it would take to turn the prospect into a producer. Naturally I suggested using Drake Gold as the catalyst to bring the project to market and fund via DKGR's infrastructure.

At first Jan and his associates, who would form the core of SME, were very hesitant to get involved with a public company because of disclosure issues that run contrary to competitive concerns, coupled with the slow pace of going from sampling to production. Whether or not this was going to be the case with DKGR was moot, given the fact they had experienced these problems with other public companies in the past. As a result, they were not interested in being acquired or doing a joint venture with DKGR. In light of the impressive preliminary work performed by Mr. Yarrington, I suggested I join their nonpublic company as a way to address their reservations. After some personal investment from each of us into the private corporation and further exploration in the area, they became more comfortable with my participation and we all grew quite excited about the potential of the project. Gold in the area hadn't been mined heavily for over 100 years, but with new mining technologies and improved margins this would truly be a great opportunity.

Keeping in mind my main investment of both time and money has been in Drake Gold Resources, my ultimate goal was to eventually fold the project into DKGR. Again, the principals at SME didn't like the idea of working with a public company due to a bad experience in the past, coupled with the worry that given transparency issues, word would get out about the claim. They rightly feared an impending gold rush in our target areas making expansion in these areas of interest more expensive and of course less profitable.

Southern Mining and Exploration was originally incorporated in the state of Minnesota about eighteen years ago. I explained to the principals that in order to go into full operation in Georgia we would need to be able to do business in Georgia and that incorporation there would be key. Seeing as I had become the primary investor, I negotiated acquiring a percentage in the company in order to become an officer and director, giving my position in negotiations more weight. I then, with the assistance of company president John Marconette, moved to bring this opportunity closer to Drake Gold and the shareholder interests I represent there, while at the same time addressing the concerns of my business associates at SME.

Since Mr. Marconette had built a relationship with the other members of SME and because of his taking the lead in the negotiation process, we were able to be more hands on. With our CFO Thomas Conar located in Tennessee, we were able to have him make several trips to the site and participate in the sampling process. Mr. Conar's participation was integral in continuing to solidify the relationship between all interested parties at SME and the DKGR leadership.

The process leading to the Joint Venture agreement included deepening relationships between SME and DKGR leadership and an explanation of the advantages of being jointly ventured with a public company, due to increased availability of project funding. We were then able to convince the SME interests to move forward with a DKGR joint venture after rights had been secured on a number of properties. This way Drake Gold Resources would not have to issue any stock to SME. The agreement of 75% working interest for all costs created an opportunity for Drake shareholders while still satisfying the other principals at SME. I have had to agree to keep our location secret until full leasing and contracts have been completed as to avoid competitive conflicts. The arrangement has already proved to be well worth it.

I am excited to bring this opportunity to all shareholders of Drake Gold Resources.

The entire Drake Gold team thanks you for your support.

Clayton Smith, Director of Drake Gold Resources Inc.