Houston Lake Mining 2010 Letter To Shareholders

Building on a Year of Exploration Success

With another year of successful exploration behind us I believe we made great strides towards achieving our corporate goals in 2009 while building a solid foundation for 2010. We focused on drilling our West Cedartree property and upgrading our gold resource estimates while strengthening both our Board of Directors and our balance sheet. We also made some management changes which I believe will help us take the company forward from exploration to development and mining.

Making Progress on West Cedartree

For our new shareholders, our West Cedartree property is situated in the heart of the Kenora region which we believe has the potential to become the next gold mining district. Over the past seven years, we accumulated a large land position and staked some of the most prospective properties in the region. While it has taken the company many years to assemble this land package we believe we have pulled together a property unmatched by anyone in the area. And we have done it while keeping one overriding principal in mind—minimize shareholder dilution.

Since 2002, Houston Lake has been a mainstay in Kenora and has been building its land position to form its present day 100% owned and optioned West Cedartree property. Where others saw risk, we saw potential. West Cedartree consists of eight contiguous properties that comprise over 1,600 hectares and six kilometres of key geology.

The West Cedartree Gold Property

We currently have two NI 43-101 compliant resources on two of our gold zones (Angel Hill and Dubenski) and a historical resource on a third (Dogpaw Lake). This year we focused much of our drilling on the Dubenski Gold Zone. We initiated and completed phases II and III of drilling which was aimed at expanding the existing gold resource estimate along strike. Our drilling confirmed the extension of the Dubenski Mineralized Zone suggesting that the Shaft, Central and East Zones form a continuous gold mineralizing system. The drilling also extended the gold mineralization to over 365 metres from our Phase I drilling (a factor of six times). We used this information to upgrade our NI 43-101 compliant resources estimate which we released in November. We increased the Indicated Resource contained ounces by a factor of 84 percent.

Given that the gold resource is near surface, I believe we have just started to reveal the potential at Dubenski. We have only drilled 365 metres of strike length of a 1,700 metre IP geophysical anomaly. The IP signature strengthens to a depth of over 450 metres and to date we have only drilled to a depth of 100 metres.

This year's drilling season promises to be very exciting for Houston Lake. We are planning a drill program that follows the Dubenski gold mineralization along strike in an effort to accumulate more ounces in that zone. A 4,000 metre Phase IV diamond drill began in December. The goal of the drill program is to add resources between the Shaft and Central Zones and to the west of the Shaft Zone, thereby extending the limits of these zones and to examine the down plunge and western extensions of the same zones.

The Company also made progress on the Dogpaw Lake Gold Zone and announced drill results from its Phase II drill program. Our deeper drill holes targeting the Dogpaw No. 2 Vein intersected some excellent high grade results. We proved the gold mineralizing system to a depth of 140 metres and for 100 metres along strike. We conducted significant channel sampling as well as downhole IP surveys to further increase our understanding of the gold mineralization at Dogpaw. Our goal is to include delineation drilling of the No. 4 Vein before commencing with a NI 43-101 compliant calculation of the No. 1 Vein gold system planned for later this year.

In addition, we revisited the Angel Hill Gold Zone this year. Angel Hill is a new discovery that was originally identified in a road cut. The company has only explored about 1% of this gold zone but has pulled some exceptionally high grades. This year we plan to return to the Angel Hill Zone to further explore the Robertson Occurrence. An historic gold showing, the Robertson Occurrence was rediscovered by Houston Lake prospectors along the Angel Hill trend approximately 1.4 km (0.84 miles) to the south of the Angel Hill gold resource. The gold showing is located proximal to one of the most prominent IP chargeability anomalies in the southern extreme of the IP survey area. The Robertson occurrence is marked by a series of historic trenches and pits.

Along Strike

All three gold zones (Angel Hill, Dogpaw Lake and Dubenski) are open along strike and to depth. Of note, Houston Lake has not predominately drilled below a depth of 100 metres on the West Cedartree property. The geology of gold mineralization in Northern Ontario is typically high-grade deep veins. Deposits that have gone on to become prolific producing gold mines tend to be deep deposits. We have identified that the geophysical signatures associated with the gold mineralization on our property tends to strengthen with depth. Drilling continues to confirm this however, deeper drilling increases both risk level, and cost. To date, we have concentrated on building resources at shallow depths in order to minimize current exploration, and future mining costs via open pit methods. In light of risk and cost, we plan to drill some deeper holes for geophysical survey and geological parameter testing this year at Dubenski. This is an effort to further test our theory that the gold mineralization could be strengthening with depth and help us further understand the deposit and develop an appropriate mining scenario.

Strengthening our Balance Sheet and Making Strategic Leadership Changes
Unlike many other junior exploration companies, the management of Houston Lake has expertise in open pit mining. We have deliberately followed the gold mineralization along strike rather than to depth with the goal being to identify sufficient tonnage to justify several open pit mines that would feed a central mill on the property. With the exploration to date we are well on our way to achieving that goal. Once in production future drilling and further exploration of the large land package could be self financed.

In choosing this approach, we advanced exploration on the property while keeping in mind our goal of preserving a tight share structure. We have taken a prudent approach to financing the company to date and we will continue to do so in the future. However drilling is expensive and during the year we issued 6,351,467 common shares for gross proceeds of $3,005,000 to finance this activity. Our goal this year is to take a more aggressive approach to drilling our property and prove up enough resources to move toward production. Our current exploration program at Dubenski is funded through financing activities that took place subsequent to the year end. We will likely require additional exploration dollars later in the year as well. As gold trades above the $1,000 an ounce mark, the market fundamentals look strong for gold to remain at elevated prices in the future. This bodes well for gold exploration companies that are more leveraged to commodity prices.
We also took steps this year to strengthen our Board of Directors by adding Mr. Robert Callander, B.Sc., M.B.A., C.F.A. Mr. Callander is a senior investment industry executive with thirty years of experience. He currently serves as Vice President at Caldwell Securities Ltd. and is a member of Caldwell Securities Investment Management. During his career Mr. Callander has managed money for high net worth individuals and was ranked as a leading industry research analyst. I believe Rob brings a deep understanding of financial markets that rounds out and complements the existing strength of our Board of Directors.

In addition, we recently announced Mr. Grayme Anthony’s departure as President and CEO. Over Mr. Anthony’s twelve years at Houston Lake he aided us in building a property package that is unmatched by any other company in the area. I am proud of what we have accomplished during his tenure with the Company. He will be staying on as a consultant as we transition to new leadership. In the interim the Board of Directors has appointed Trevor R. Walker as Interim President while we conduct an executive search.  Mr. Trevor R. Walker joined Houston Lake late last year. Prior to joining Houston Lake he held the position of Vice President of the Consbec Group of Companies where he accumulated years of experience in mining and construction. Mr. Walker holds an honours BA from the University of Western Ontario, and an MBA from Webster University Geneva, Switzerland.

With another season of drilling ahead of us, a strong balance sheet and newly energized Board and Management team I am confident that Houston Lake will be play a critical role in Kenora's rise as the next gold mining district in Canada.

On a personal note, I would like to take this opportunity to thank you our valued shareholders for your support over the years.

Best Regards,

Reginald (Rick) Walker
Chairman of the Board