2nd quarter activities and cashflow report , page-5

No that 40m at 0.7g/t is a very very encouraging result.

You have to understand how reef gold is deposited.

In a reef of gold, such as at Wattle Dam, the gold tends to be concentrated in channels, with progressively less gold concentration as you move away from the major channel (deposited as water bearing the gold passed through over millions of years)

As with a river on the surface, most of the water moves through the main channel (the future reef), but a little seeps into the banks and moves alongside within the banks (ie seeps into bank and some seeps back out at the lower level downstream).

As you would appreciate the vast majority of gold bearing water flows in the major channels under the ground as well, hence the concentration of gold deposited is much higher in the major channel and falls off as you move away from it.

The low-grade 40m hit is exciting because a low grade over such a long width suggests you are likely some distance from the highest concentration channel, with concentration increasing as you get nearer, and that a great deal of water has passed through bearing gold to have deposited a significant concentration that is presmably this far off the main channel.

Only some such formations will have a very high grade large reef associated with them, which is why this is just "very encouraging" and not sensational. The potential of a very big strike is greatly increased by the presence of this.

As for Wattle dam - that the channel is shallower is great - that means that it is also likely to be longer in total, with therefore more high grade zones. It is also easier and cheaper to mine.

The bit I like best though is the possibility of getting $270,000 ounces of gold out in the next year - that adds up to about $270 million dollars worth of gold against $9m operating and $16m capital - about a $240 million dollar profit on that operation - or PE of about 1 for next year. Naturally exploration costs will come out of that but it is a fine base to build on to expand operations without further dilution (maybe they'll also undertake a stock buy-back to reduce dilution).

Obviously they need to find more gold to sustain operations and unless they find further high grade zones they won't be as profitable in future - though don't need to be if they can return much of the capital quickly. I'm still in the red at this price though don't expect to be for long.