CEO’s Statement - look back on the year 2010

I am proud to look back on the year 2010: we achieved what we had set out to do in late 2009, and Endomines was successfully transformed from a junior exploration company to a mining company ready for production. Construction of the Pampalo Mine, which began in November 2009, was completed before year- end 2010 as planned and in line with its budget. The Pampalo Gold Mine delivered its first gold concentrates to Boliden’s Harjavalta smelter in early February 2011, and is now ramping up production to full capacity.

Milestones achieved and key events during 2010

Construction and production

Endomines focused its efforts during 2010 on the construction and start-up of the Pampalo Gold Mine. Underground mine production started in mid-April, and 1 000 meters of underground development drifting has been completed since then. In total, 45 000 tonnes of ore has been mined by drifting and long-hole stoping. Combined with our existing ore stockpiles of 22 000 tonnes, this amounts to a total of 67 000 tonnes of ore Endomines has stockpiled for processing, and equals approximately 4 months of mill feed. This will secure sufficient ore supply to cover for production start-up and will provide a buffer against any potential disruptions in the underground mine. The ore from the development drifting has been regularly sampled, and these have returned grades which comply with the ore reserve grades from their respective areas.

The infill drilling campaign completed during the spring of 2010 also delineated the intended production area for the initial two to three years of production.

Ventilation raises of approximately 175 meters were drifted during 2010 and these raises will secure fresh air supply and secondary means of egress for the Pampalo underground mine.
I am pleased to report that construction on the surface progressed also very well despite the severe winter conditions experienced at the beginning of the year and remained on schedule for the rest of the year. The processing plant building construction was started in January and the plant building was erected in March. Inside installations commenced immediately and continued until the year end.

The tailings storage facility works were completed in August 2010. The processing plant and a new 47-kilometer power line were completed in mid-November. Test runs started immediately thereafter with adjustments made to various operating parameters in subsequent weeks with a view to reaching a steady rate of production flow through the plant. This was achieved at the beginning of 2011 with the plant now approaching its nominal capacity of 230 000 tonnes/annum. The crushing plant is operating at its design capacity of 130 tons per hour.

An on-site laboratory was also built during 2010 in favor of out-sourcing laboratory assaying, and was up and running in October.

An updated JORC-compliant mineral resource and ore reserve estimate for the Pampalo Gold Mine was completed by independent consulting company, Outotec Oyj (Finland), in September. The increase of the mineable reserve tonnes at Pampalo Gold Mine by 50% and gold content by 11% will add almost two years to the Pampalo mine and the Karelian Gold Line production plan which, together with satellite mines, is now estimated at eight years. The planned production capacity at Pampalo remains at 230,000 tonnes per annum and annual gold production at 900-1000kg. These new estimates further strengthen the outlook for profitable gold production at Pampalo and the Karelian Gold Line.

Ilmenite

The Endomines Board of Directors carried out a market study and analysis of the Kälviä ilmenite assets during Q1 and Q2, including commissioning a study by independent consultants. Given the current focus by the company on the Pampalo mine and to developing its other gold assets, the Board did not foresee the allocation of sufficient capital to its industrial minerals subsidiary, Kalvinit Oy. The Board therefore decided to write down these assets by 43.8 million SEK, and will be considering various strategic alternatives for the project during 2011. These will include seeking a partner for the business, as ilmenite demand is expected to pick up on the back of the improving global economy and a tightening supply/demand ratio.

Personnel

The number of own personnel at year-end 2010 was 49, of which 47 were working at the Pampalo mine site. In addition there were 30 contractor personnel working on-site. All required recruitment for operating the mine was concluded before the end of the year, with approximately c. 70% hired locally and trained by Endomines under a local government employment subsidy program.

A key challenge for the mining industry in the Nordic region is the dearth of qualified personnel. Endomines has responded to this challenge through its training and apprenticeship programs, and incentives such as assisted pension plans to encourage retention. Our personnel is our most valuable asset, and we consider training and safety standards to be of the highest priority.

There were three Lost Time Injuries during 2010 at Pampalo, incurred during the construction and commissioning phases. Our LTI-frequency rate (LTIFR ) for own and contractor personnel together, is 20. This figure is below the industry average but our target is and will remain to zero accidents.

Financial

The Pampalo Gold mine project has remained in line with its budget throughout 2010, with only some adjustments to quality improvements on the crushing circuit and as we decided to build an on-site laboratory in favor of out-sourcing the laboratory assaying. The latter alternative would have been more expensive in the long-run.

Endomines Oy signed a 2-year agreement to sell its flotation gold concentrate production from the Pampalo Gold Mine to Boliden Commercial AB in March. Under this contract, Endomines will deliver its estimated annual flotation concentrate production of 4 000 tonnes to Boliden’s Harjavalta smelter in Finland.

The volume of deliveries and estimated concentrate grade allow for up to 100% of gold production to be delivered to Boliden. The contract includes an option to extend it for a further two years. This contract not only provides us with the security of sales, but also allows for flexibility in balancing our production volumes between the higher value gravimetric gold concentrate and flotation concentrate.

The subscription period for Endomines warrants which were received by subscribers to the rights issue in 2009, ended on 15 December 2010, and a total of 99.8% were exercised for subscription to new shares.

Market

Gold supply from mines rose to about 2 652 tonnes in 2010 , the second year of production gains after a steady decline in output from 2000 to 2008. In the past two years, mine production has risen by 10%. Although changes to mine supply have an impact on gold prices, they tend to have less impact than shifts in above-ground inventories of gold, which is estimated at approximately 170 000 tonnes.

Compared to this figure, the rise in global mine production, amounting to 69 tonnes last year, was not significant enough to have influence gold prices. The main sources of gold supply in previous years, namely central bank sales and recycled gold supplies, have declined despite the strong increase in the average gold price. Central banks became net buyers of gold in 2010, after 21 years of net sales. In addition, the supply of recycled gold which tends to rise with increases in average gold prices, declined as investors held on to their gold in expectation of even higher prices.

Total gold supply in 2010 thus increased by only 0.5%, despite the sharply higher mine production. Whilst mine supply is expected to continue to increase year-on-year as some of the increased exploration and project spending over the last decade comes on-stream, the lower central bank contributions and expected stable recycled gold flows mean that total supply growth is expected to remain modest.

Demand for gold reached a 10-year high in 2010, driven by a strong momentum in Chinese gold demand, the revival of demand for jewellery in Asia and continued central bank buying. Highly sensitive to geo-politics, gold prices have reacted to concerns about the Eurozone sovereign debt crisis, the tensions spreading in the Middle East this year as well as escalating tensions on the Korean Peninsula. This positive gold price development is widely expected to continue as central banks, particularly in Asia, are expected to diversify their foreign exchange reserves further by increasing their holdings in gold, and inflows into gold exchange traded funds will continue to increase. The reason for this is that investors are seeking to protect themselves against the twin threats of deflation and inflation.

In addition, the impact of de-hedging by producers over the past decade has been seen to be a key factor which has supported the recent rise in gold price. This de-hedging process is now coming to an end as the largest producers such as AngloGold Ashanti in South Africa, have become un-hedged producers. Whilst there has been some hedging taken on during 2010, mainly for the purpose of project development, this means that gold price development is now more driven by physical supply/demand issues and economic and monetary considerations, rather than by speculative movements deriving from hedging.
A pre-requisite for global supply growth is a steady flow of large new mines. These are very capital intensive and often located in high-risk regimes. Small and mid-size projects in low-risk regions became attractive propositions a few years ago, and the turmoil in the financial markets further enhanced the value of projects and companies with low debt gearing. Endomines is therefore exceptionally well-positioned to benefit from the above trends, both in terms of the timing of the Pampalo Gold Mine and its capital structure.

Outlook

The production ramp-up at the Pampalo Gold Mine will continue until summer 2011. By then, we believe that all start-up challenges will be resolved and any remaining modifications in the processing plant completed. The company expects to achieve an annualized gold production of 900-1000kg/annum before year-end 2011.

The company will gradually shift its mining operations towards a more owner-operator model as contractor availability in Finland is becoming scarcer and pricing unfavorable. This plan involves investing in mining and transport machinery as well as increasing staff levels. Three units of heavy machinery (long-hole drilling rig, ground support rig and loader), with a cost of € 1,8 million, have been purchased or ordered since the beginning of 2010, with remaining deliveries from February to July 2011. The necessary personnel required to operate these rigs have been recruited.

Endomines’ own head-count is expected to increase slightly due to the shift of underground works towards an owner-operator model.

The year 2011 will see a strong focus on further exploration along the Karelian Gold Line and at our other exploration targets in Finland, Porkonen and Kivimaa, with extensive diamond drilling campaigns of approximately 7 000 meters along the Karelian Gold Line deposits and 2 000 meters in Finnish Lapland. Endomines will also continue to consider further strategic opportunities during the coming year, with our main focus on Finland, and other Nordic countries.

With the Pampalo project now completed and in production without major disruptions or cost-overruns, and the continuing strong gold price, Endomines starts the year 2011 with great confidence. We are expecting to receive early free cash flow that will be utilized to implement the Company's strategy for corporate growth. With our low technical risk, a production process based on sustainable values and a low impact on the environment, combined with the significant potential of our additional gold assets, we can look forward to an exciting future for Endomines.

Finally, my sincere thanks go to my colleagues at Endomines and our contractors whose dedication and hard work made the achievements described above possible. I would also like to take the opportunity to thank our Board of Directors, our partners and our shareholders for their continuing support and commitment.

Pampalo, March 2011

Markus Ekberg

Chief Executive Officer