North American Gem Inc V.NAG

RE: RE: PP cost of mines 2&3

[wallywill]

Hope this helps

Swan Pond Property

On June 9, 2009, the Company (the Lessee) entered into a Letter of Intent (“LOI”) to

acquire certain coal leases located in Knox County, Kentucky from Lonesome Pine

Leasing LLC (“LPL”) (the Lessor). The leases are referred to as the as the “Swan Pond”

property (“Powell Lease”) and the “Possum Hollow” property. The Powell Lease was

secured and is part of the Swan Pond Property.

NORTH AMERICAN GEM INC.

Notes to the Interim Consolidated Financial Statements

March 31, 2010

5. MINERAL PROPERTY INTERESTS (continued)

Kentucky Property, US (continued)

Swan Pond Property (continued)

The principal terms set forth in the LOI include the:

• Lessor grantors to the Lessee the right to acquire an exclusive and undivided

leasehold interest in the Kentucky Property, including coal mining and extraction

rights, from the Lessor, upon:

• Lessee making tonnage production royalty payments to the Lessor in the amount

of 8% of the selling price (FOB mine) on all coal mined and extracted from the

Kentucky Properties; and

• Lessee making tonnage production override royalty payments to the lessor in the

amount of $1.00/net ton on all coal mined and extracted from the Kentucky

Properties; and

• Lessee made a one time payment to the Lessor in the amount of $15,000 USD

(paid $16,702 CAD). The amount was paid to secure the Powell Lease and for

all the due diligence related to securing the property.

On September 23, 2009, the Company announced a Definitive Agreement to acquire

additional coal leases located in Knox County, Kentucky. The leases, referred to as the

“ABGSC Leases” are currently being permitted for mining under permit #861-0502.

The ABGSC Leases consist of the following Lessors and terms:

NORTH AMERICAN GEM INC.

Notes to the Interim Consolidated Financial Statements

March 31, 2010

5. MINERAL PROPERTY INTERESTS (continued)

Kentucky Property, US (continued)

Swan Pond Property (continued)

Date of

Lease

Name of

Lessor Term Payments to Lessors Royalty Overide

8/9/2009 West 2 years

Greater of $2.60 USD per net ton of

2,000 pounds or 6.5% of gross selling

price per ton

$1.50 per net ton

and 1% payments

on gross sales

(FOB Mine) due

to ABGSC

5/14/2009 King 5 years

Greater of $3.00 per net ton of 2,000

pounds or 8% of gross selling price per

ton $1.50 per net ton

5/14/2009 Foley 5 years

Greater of $3.00 per net ton of 2,000

pounds or 6% of gross selling price per

ton, wheelage rate of
.25 per ton for

coal mined and transported by truck

across surface owned by Lessor

$1.50 per net ton

and 1% payments

on gross sales

(FOB Mine) due

to ABGSC

5/27/2009 Gray 5 years

Wheelage rate of
.35 per net ton of

2,000 pounds coal

6/26/2009 Powell

2 year with

automatic

renewal until

coal resource is

exhausted

Greater of 8% of gross selling price per

clean ton or $3.00 per clean ton and

wheelage rate of
.25 per ton for coal

mined and transported by truck across

surface owned by Lessor

$1 per net ton due

to LPL

In consideration of and for the sale of the Permit and Leases:

• The Vendor grants to the Company the right to acquire an exclusive and

undivided leasehold interest in the ABGSC Leases, including coal mining and

extraction rights, from the Lessor, upon the Lessee making one time payments to

the Lessor in the amount of:

o $20,000 USD payment upon signature of the Letter of Intent (paid $22,014

CAD);

o $40,000 USD payment upon execution of the Definitive Agreement (paid

$43,554 CAD); and

o $40,000 USD upon technical acceptance of “the permit” by the Kentucky

DNR.

NORTH AMERICAN GEM INC.

Notes to the Interim Consolidated Financial Statements

March 31, 2010

5. MINERAL PROPERTY INTERESTS (continued)

Kentucky Property, US (continued)

Swan Pond Property (continued)

• The Vendor shall be paid a recoupable minimum royalty payment of $10,000

USD per month beginning no later than ninety days after the technical

acceptance of the permit and not to exceed 36 months for a maximum of

$360,000 after which royalties will only be paid according to actual coal mined.

Vendor minimum royalty payments will be capped at a maximum of $10,000 USD

per month until the Company recovers $40,000 USD of purchase money funds

described above. This payment can be credited against royalties when and if

royalties from mining activities commence and to such an extent as such royalties

exceed $10,000 USD per month paid to the Vendor.

• The Lessor agrees to continue the permitting process for permit #861-0502 at its

own cost, except for bonding and acerage fees, prior to final payment by the

Lessee.

Granny Rose Property

On February 2, 2010 the Company acquired the Granny Rose lease in Knox County,

Kentucky.

In consideration for the lease acquisition, the Company must pay $100,000 USD (paid

$111,095 CAD) as advance royalty and issue 250,000 common shares (pending

Exchange approval). In addition, the Company is to make payments to the Lessor as

tonnage royalty per 2,000 ton of coal as follows: $4.00 or 8% of gross sales price

whichever is greater per raw ton for all strip and auger coal.

Wynn Hollow and Demps Hollow Properties

In October 2009, the Company acquired additional coal leases from LPL in Knox

County, Kentucky totalling 1,700 acres. As per the terms of the agreement, the Lessor

grants the Lessee an exclusive and undivided leasehold interest in 5 leases including

the coal mining and extraction rights. In consideration for the lease acquisition, the

Company was to make tonnage royalty payments to the Lessor as specified for each

individual lease assigned to the Company and a $1.00/net ton mined override royalty

payment to LPL for all coal mined and extracted from these properties, pay $25,000

USD and transfer 1,600,000 common shares of the Company.

During the quarter ended March 31, 2010, the Company returned 1,420 acres of the

leases back to LPL and only retains interests in the Moore Lease for which the Company

has to make minimum royalty payments of $1,000 per month, and a tonnage royalty of

8% of the selling price of the coal sold or mined or $3.00 per ton. As a result, the

Company will no longer transfer 1,600,000 common shares to LPL.

NORTH AMERICAN GEM INC.

Notes to the Interim Consolidated Financial Statements

March 31, 2010

5. MINERAL PROPERTY INTERESTS (continued)

Kentucky Property, US (continued)

Wynn Hollow and Demps Hollow Properties (continued)

In March of 2010, the company acquired an additional 2,600 acres of coal leases

previously assigned to LPL via South Coast Holdings of Georgia, Inc. (the Lessor) in

Knox County, Kentucky. Per the terms of the agreement, the Company has access to all

the coal located in and or under the property for which the Company is required to make

annual minimum royalty payments of $5,000 and for each ton of coal mined and

removed from the premises, a tonnage royalty equal to 8% of the gross selling price of

coal or $3.50 per ton of coal mined, sold or removed by the Company.

Jamieson Permit - North American Gem Mine #2

On March 31, 2010 the Company announced the signing of a definitive agreement of a

fully operational surface coal mine with both minable Blue Gem and Jellico coal seams

located in Knox County, Kentucky. In consideration for the acquisition, the Company

must pay $150,000 USD in three instalments, with the entire amount due in full when the

transfer is complete. The Company has paid $50,000 USD ($53,125 CAD), with the

balance of $100,000 USD to be paid according to the following schedule:

• $50,000 USD payment upon the submission of the transfer application;

• $50,000 USD payment upon the completion of the transfer application.

In relation to the acquisition of the Jamieson Permit, the company also acquired the

Gilliam Hill North leases, terms for which the Company is still finalizing