Annual Report for ML 27438 Lethbridge South for period 12 May 2011 to 11 May 2012

Abstract

In the reporting year the primary focus of the company has been on the development of an operating mine in ML 27438. The company was previously mining at ML 24511 approximately 4 kilometres to the northwest of its current mine area. Unfortunately a fire destroyed the processing plant in mid-2011 when relocation to ML 27438 was almost complete. The subsequent rebuild and start-up has been a major focus for the company since the insurance claimwas settled. Several million dollars have been invested in the rebuild and start up at ML 27438 within EL 23862 which demonstrates the company's commitment to ongoing mining operations. Matilda Zircon commencedmining in the report period in the Northern and North Central mine panels. In the 2013 period mining will be in the South and South Central panels. The main exploration and mining expenses related to this report are in three main categories: Drilling/costeans to establishing grade boundaries andmining grade controlwithinmining panels; Independent resource modeling; and An environmental review. The grade drilling/costeans began in January with the identification of areas where existing drill data was sparse. An attempt was made to start drilling with a hand auger and this was abandoned due to its slowness and water issues. A drilling plan using a petrol driven auger was successfully implemented and resulted in approximetly 120 metres of drilling in the 1 metre and 2 metre intervals in the ML. It is planned to continue this type and scale of drilling/costeans for the remainder of the mine life. Mining is expected to be completed by December 31, 2012 given plant reliability and water supplies remain as they are in July 2012. A resource review was conducted in August 2011 by Hermitage Pty Ltd (geological consultant). The review accompanies this report. Consistent with the company's commitment to conducting operations in an environmentally responsible manner EcOz was contracted to conduct water testing and provide an updated environmental report in the period.