Annual report for EL 23393 'Arunta Project', for the year ended 16 February 2006

Abstract

This report summarises work carried out on Exploration License 23393, Arunta Project, Northern Territory for the year ended 16th February 2006. Through compilation efforts, Falconbridge (Australia) Pty Limited identified the north-central Arunta as being favourable to host Proterozoic, intrusive related, magmatic Ni-Cu-PGE sulphide mineralization, analogous to the giant Voiseys Bay nickel-copper deposit in Canada. The area has seen little historic work and has not been the focus of dedicated nickel sulphide exploration in recent years. In December 2003, Discovery Nickel Limited acquired 100% interest in EL23393 and other Falconbridge tenements following the successful listing of Discovery Nickel on the Australian Stock Exchange. Most significant nickel-copper massive sulphide deposits are extremely good conductors. Discovery Nickel's exploration approach relies heavily on airborne electromagnetic (AEM) surveying, followed up by ground EM to define targets. Falconbridge commissioned an AEM survey over the Arunta tenements in early 2003 and after analysis of the Falconbridge AEM results, Discovery Nickel Limited commissioned a ground EM (SMARTEM) survey focused on the highest priority target areas. The results did not highlight any strong anomalies/basement conductors that warranted drill testing on EL 23393. Drilling at prospect B1 on EL 23392, north east of EL 23393 intersected a significant new sulphide system. Additional airborne EM (GEOTEM) was collected during October 2004 over areas on EL 23395 and EL 23391. In 2005 DNL exploration efforts were restricted due to problems securing contractors to collect additional ground EM and drilling. Reassessment of 2004 GEOTEM in light of success at B1 on EL 23392 highlighted additional targets for followup. In late 2005 DNL was able to finally collect additional EM along strike from the B1 prospect. But unfortunately failed to cover any of the new targets on EL 23393 before the onset of the wet season.