North American Gem Inc.

Symbol:                                 NAG.V
Exchange:                             TSX
Shares Outstanding:           128.2 million
Market Capitalization:        19.23 million
Share Price:                          0.15 (Oct 25, 2009)
Telephone:                            604-683-5445
Website:                                www.northamericangem.ca
Email:                                     info@northamericangem.com

North American Gem Inc. (TSX-V symbol: NAG) is a Junior Exploration Company based in Western Canada. The Company's primary goal is to explore for Coal in North America, currently the focus is in Kentucky, Saskatchewan and West Virginia. In addition to Coal exploration, the Company also has interests in Uranium, Copper, Gold, Molybdenum and other base metals in Canada.

Analysis

Blue Gem Coal: found in only three places in the world and NAG owns a significant portion in Kentucky, USA.

Recent sample analysis of the Blue Gem seam was very encouraging showing 3% ash, 0.65% sulfur and a range of 14,200 - 15,200 btu. Blue Gem Coal is a high carbon, low ash, low fusion and low grind (very hard) coal that is found only in a small area along the border of Tennessee and Kentucky in the Cumberland Mountains. The coal seam, throughout the region, runs in thickness from 48-71 cm. Blue Gem Coal is one of three coal seams in the world that are best suited for production of silicon metals. The other two are found in West Virginia and Columbia, South America. Of the three, the Blue Gem is the most sought after. For this reason, it is not only consumed in the U.S., but also exported extensively to Canada, Norway, Iceland, India, France, South Africa and Egypt. With the ever increasing demand for silicon metals and silicon products, mineable Blue Gem coal resources are becoming increasingly more valuable. Historically, the Blue Gem coal can bring an FOB (Freight On Board) mine price that is as much as 100% higher than high quality steam coal and is typically the highest priced of any grade of coal produced in the U.S.

Operation Highlights: 4 good reasons to watch this company

1.     NAG does not have an overbuilt managerial system. It is really a bundle of 6 smaller operations. This relieves it from burdensome fixed costs associated with a centralized managerial system, while allowing the company an opportunity to coordinate these operations in a rising market or scale back operational components in the event of a commodity decline.

2.     NAG has chosen to focus on highwall drilling over auger drilling methods. Auger drilling can only drill a 22 inch hole to a depth of 200 feet. It wastes a lot of time and resource. Highwall cuts a swath 10-15 feet in length to a depth of 1000 feet. This affords NAG greater mining efficiencies and a better environmental footprint because it dramatically reduces the amount of surface disturbance and allows for the recovery of any potential reserves that were previously believed not to be economically viable.

3.    Coal futures are all pointing up. This is great news for the commodity currently trading at $54 per tonne and expected to reach $70 per tonne in Dec 2009 remaining steady at that level through 2010.

4.      50% of all electricity production in the US depends on coal and this domestic demand has steadily risen over the last few years. China, India, and South Korea are increasing their demand for coal, and they are actively seeking to acquire coal reserves in the US.

Environmental Concerns

In its Oct 2, 2009 news release, North American Gem Inc. noted the EPA targeting the practice of "mountaintop removal" which is not the type of permitting that North American Gem is seeking. The decision of North American Gem to acquire and develop certain coal leases in Kentucky was made with consideration of the situation regarding the "mountaintop removal" and "valley fill" issues under scrutiny by the US Environmental Protection Agency.  None of the leases currently held or being considered by NAG will be affected by this issue.

The method of potential mining to be used by NAG is known as contour mining. This type of mining is done on properties that were previously mined prior to the enactment of the Surface Mine Control and Reclamation and control act of 1977. This law requires that after any surface mining, the land must be restored to approximate original contour unless otherwise specified in the permit application and approved by the Kentucky Department of Natural Resources (KDNR). When "pre-law" mining was done, the general practice was to mine along the contour of a slope to the maximum profitable ratio and leave the resulting highwall and a wide, flat bench where the material covering the coal was removed and then graded somewhat flat as opposed to restoring the original slope.

All of NAG's potential mining operations will incorporate sediment control methods that will keep ahead of the increased regulations and restrictions. Furthermore, in anticipation of increased regulations, NAG has, in all of its permitting applications, begun the sampling of receiving streams and groundwater wells utilizing the most stringent and extensive sampling parameters. This will allow NAG to comply with the regulatory requirements and will also result in much shorter and smoother permitting application process

Financials

                        2008           2007         2006

Revenue                 Nil                   Nil                Nil

Net loss for year   (2,016,273) (294,200)   (822,803)

Loss per share     (0.02)           (0.00)          (0.02)

Total assets          8,295,803    5,578,343  2,998,839

Long term debt       Nil               Nil              Nil

Cash dividends      Nil               Nil              Nil

Results of Operations

The net loss for the six month ended June 30, 2009 was $1,748,177 (2008 - $619,759). The major components of the Company’s net loss for six month ended June 30, 2009 were business development $99,550 (2008 - $92,983), consulting $74,000 (2008 - $47,556), flow through tax $19,614 (2008 - $nil), investor communications, $38,468 (2008 - $40,665), office and miscellaneous $41,788 (2008 - $29,914), professional fees $56,066 (2008 - $39,465), rent $30,496 (2008 – $21,292), transfer agent and regulatory fees $23,352 (2008 - $28,588), wages and salaries $157,316 (2008 - $192,438) and stock based compensation $119,506 (2008 – $134,312). The Company also recognized mineral interest impairment charge of $1,102,849 (2008 – $nil), interest income of $14,877 (2008 – 575), foreign exchange loss $574 (2008 – nil), accounts payable recovery $525 (2008 - $nil).

Liquidity and Solvency

The Company did not have any revenues during the period and continues to depend on its ability to procure sufficient funding through share offerings, debt, and financial support from related parties, to support current and future expenditures. At June 30, 2009, the Company had working capital of $490,888 (December 31,2008 - $843,971) and a cumulative deficit of $8,489,503 (December 31, 2008 - $6,741,326). The cash component of working capital at June 30, 2009 was $101,145 (2008 - $147,768).

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