Conversation with Tony

I had a conversation with Tony and am posting what we discussed. Hopefully this will alleviate some of your concerns. This is not verbatim and I apologise if my interpretation is unclear.

1st - Re Finance. Quarterly report due out by the end of this month which includes 5B cash statement. I was comforted somewhat when he re-iterated to me that there would be a large number of junior exploration companies who would envy the position THX are in.

2nd Drilling Program and Approach. Diamond drilling is significantly more expensive than RC and aircore. Tony reiterated how important it was to identify targets which have a sound, valid geological reason to drill them – beforehand. THX has established a culture of being miserly with their spend and this is in line with that culture.

2a Drilling comparison to SFR and other: SFR discovery in May 2009 of DeGrussa is reported to have involved an element of good fortune. By May 2010 they’d identified all the Conductor deposits. Since then the Doolgunna region has seen extensive exploration by multiple companies including SFR, Talisman, Sipa, Ventnor, RNI and Horseshoe Metals. As many will know SFR has assimilated the Sipa, Ventnor and lion’s share of Talisman ground. I found it interesting to learn Talisman actually drilled within tens of metres of Monty without seeing anything of substance. SFR’s EM survey down that old Talisman drillhole suggested the possible presence of an off-hole conductor and two holes later they hit the new Monty mineralisation. Tony guessed there had been probably over $150M in total spent in the last five years on exploring all around for the next DeGrussa since the last Conductor body was identified in May 2010. It was very encouraging Monty has shown us all that there are others around. At depth.

2b Deep Drilling Scenario - If THX drilled a 500m diamond hole at $250/m (very rough estimate for all-up cost to company, including geo time, assays, etc) it would equate to about $125k spent on one hole. So you want to be pretty confident about a target when you commit that sort of dough.

Assume we’d all be very happy as a start to hit a lens of massive sulphide that was 50m x 50m. That means that the 2 km x 1 km Red Bore tenement could theoretically fit 800 of these lenses in it. If the whole tenement was drilled on a 50m x 50m grid, including down the boundaries, it would take 41 x 21 = 861 holes.

In summary, without adopting geological controls it’s in the order of 1 in 800 to hit that first sulphide lens. This equates to 0.12% probability of success if the whole tenement on a 50m x 50m grid is covered. So to use shareholder money effectively and not waste it, you have to have very good underlying technical reasons when you decide where to site deep holes. That takes time and a systematic approach to the exploration work.

HOWEVER, as I have said previously and Tony also echoed, they are planning downhole EM and follow up diamond drilling and that is not something THX would contemplate if they thought they’d terminate the project.

Additionally, the recent Monty success confirms that THX are in a VMS camp and similar VMS examples from around the world indicate there WILL be more of them. Also, THX are assuming the near-surface sulphide at Gossan has its source somewhere from deeper down.