looking great, page-2

c k locke analyst report june 06 all came true Share Price: $0.22 Sector: Materials and Oil & Gas
Recommendation: Speculative Buy Analyst: Enrico Mattiaccio
KEY ASX DATA
Price of Shares (FPO) $0.22
Number of Ordinary Shares 135,674,704
Market Cap ($) 29,848,435
Listed Options 32,633,433
Unlisted Options 23,250,000
12 Month Volume 151,850,275
12 Month Price Range $0.12 - $0.275
12 month Target $1.00 - $1.50
Risk High
Liquidity Risk Low
Project Risk High
Location Risk Low/Medium
Source: GDN
SUBSTANTIAL SHAREHOLDERS
Baselink Investments Pty Ltd 4.94%
Masterline Nominees Pty Ltd 4.94%
Westyle Holdings Pty Ltd 4.86%
Silver Knight Holdings 2.40%
4 Australia Pty Ltd 2.21%
20 largest share holders = 34.10% Source: GDN
DIRECTORS
Richard Sciano Managing Director
John Trevor Hasleby Exploration Director (exec)
Lewis George Cross Director (Non-exec)
COMPANY SECRETARY
Peter Campbell Ruttledge Company Secretary
Source: GDN
Source: GDN - AFSL: 222440 AC N:081 957 271 2
Company Background and Projects in Summary
Golden State Resources Limited (GDN)
principal activity is minerals and oil and gas
exploration. The Company is primarily
focused on natural gas projects located in
the USA and gold projects located in the
Eastern Goldfields region of Western
Australia.
GOLDEN EAGLE PROJECT (EARNING 83.3%-
EQUITY, OPERATOR)
The Golden Eagle prospect is located in the
Four Corners region of the USA, in the
south-eastern part of Utah.
GDN anticipates the prospect may hold up
to 3 TCF of gas equivalent with a mid-target
of approximately 440 BCF plus liquids with
an assessed probability of success set at
over 19.5% by the company’s geologists.
With GDN’s equity of 83.3% in the Golden
Eagle prospect; GDN believes the company
can potentially offer great leverage of
success. A mid-case potential discovery of
440 BCF of gas would equate to a
significant move to GDN’s share price on
the ASX.
A minimum case of 50BCF currently is
potentially economic. Even based on this
alone it technically values the GDN share
price at $1.00 to $1.50.
LAVERTON GOLD PROJECT
The Laverton project is located in the
Eastern Goldfields region of Western
Australia and is prospective for gold.
It involves several prospects including –
England, Kelly Well, North Well and
Barnicoat.
MENZIES GOLD PROJECT
Located 120 km north of Kalgoorlie near the
town of Menzies, the South Yunndaga
Prospect lies immediately to the south and
along the strike from the Lady Shenton and
Yunndaga gold mines, which have
produced in excess of 0.75 million ounces.
GDN holds 4.5 km of the strike extension of
the mineralised shear that hosts the mines.
LEONORA PROJECT (100%-EQUITY)
This project is located 20 km from the
Western Australian Eastern Goldfields town
of Leonora. GDN is involved in exploration
on the Leonora project on 100%-owned
project areas.
THOMPSON URANIUM
Located 300km south east of Salt Lake
City, Utah. Previous drilling has indicated
anomalous uranium and vanadium
intersections, including 0.1m at 6.18%
uranium oxide and 0.2% vanadium
pentoxide.
Source GDNSource:
GDN - AFSL: 222440 AC N:081 957 271 3
Recommendation | Rational
· The Golden Eagle prospect is a large un-drilled Pennsylvanian shelf-edge
basement structure with anticipated potential to produce more than 3 TCF of gas.
· Potential pay zones to 4,420m – the well will target 11 potential pay zones totalling
319 metres thickness within the 2,300 metre thick Pennsylvanian and Mississippian
(Carboniferous) section.
· Paradox Basin #1 is anticipated to enter pay section at 2,150 metres by
approximately the fourth week in June 2006. The well will test 11 potential pay
zones, including the deepest and largest target, the Leadville Limestone at 4,100m,
concluding during July 2006.
· The target structure has an area of up to 2,000 ha with 11 potential pay zones
within 1,450m Pennsylvanian (Upper Carboniferous) section plus 240m of deeper
Mississippian (Lower Carboniferous) carbonates, commencing from a depth of
2,600m, down to 4,400m.
· GDN maintains an initial 100% interest in the well, operating through its 100%
owned US subsidiary Golden Eagle Exploration LLC. Joint Venture partner Eclipse
Exploration Inc has the right to back in with a 16.67% working interest after the
drilling of two wells by GDN.
· GDN consultants anticipate a high level of success in the first well with anticipated
80% success in achieving a minimum case of 50 BCF. 50 BCF is potentially
economic.
· Further success in a mid-case potential discovery of 440 BCF of gas, based on an
anticipated lower success percentage level, with a potential upside to 3 TCFE for
the maximum 2,000 ha case.
· With a collection of overall projects and quality of advanced targets in GDN’S gas
project, together with anticipated strengthening of future underlying commodity
prices in oil and gas.
We recommend GDN as a Speculative Buy at these current levels, with a 12 month
price target of up to A$1.50 per share.
Source: GDN - AFSL: 222440 AC N:081 957 271 4
Profile of Directors
RICHARD SCIANO | MANAGING DIRECTOR
Richard Sciano is a businessman with over
15 years experience in the property
investment and building development
sectors of Western Australia.
He has extensive project management and
commercial activities experience, both in
the public and business sectors. He has
been Executive Director of the company
since January 2003, during which time its
market capitalisation has grown from $1.8
million to $30 million.
Richard is also a non-executive director of
Adelaide-based ASX listed company, MGM
Wireless Ltd.
JOHN TREVOR HASLEBY | EXPLORATION
DIRECTOR
John Hasleby has over 25 years experience
in the minerals exploration and mining
industries.
He has an operational and managerial
background in exploration, development
and mining for Australia and international
companies.
His experience has principally been in gold
but he has also been involved in the search
for platinoids, base metals, rare earths and
uranium in Australia and overseas, resulting
in the generation and exploration of a
number of gold deposits that have become
mines.
John has a degree in Applied Science from
Curtin University, Western Australia and is
a member of the Australian Institute of
Mining and Metallurgy and the Society of
Petroleum Engineers of AIME.
LEWIS GEORGE CROSS | DIRECTOR
Mr Cross is a Certified Practising
Accountant and principal of the firm
CrossCorp Accounting, which has been
established for over 24 years. He has a
Bachelor of Business majoring in
Accounting from Curtin University and is a
Fellow of the Institute of Company
Directors. Mr Cross has been involved in
the mining industry for many years, as well
as various other industries in the course of
his work in providing accounting and
business consulting services. He has had
extensive experience as a company
director and is currently Non-executive
Chairman of Polaris Metals NL, and a
director of Aspermont Limited.
PETER CAMPBELL RUTTLEDGE | COMPANY
SECRETARY
Peter Ruttledge is a Deloitte-trained
Charted Accountant with multinational
experience who, for the past 20 years, has
been involved in the Australian mineral
exploration and mining industry.
He was Company Secretary of Dalrymple
Resources NL during that company’s
transition from explorer to gold producer,
prior to its merger with LionOre Mining
International Group and is Company
Secretary of a number of listed exploration
companies.
Source: GDN - AFSL: 222440 AC N:081 957 271 5
Profile of Technical Consultants to the Company
NEVILLE HENRY | GEOLOGICAL ADVISOR
Neville Henry, principal of Trend
Exploration Consultants of Houston, Texas,
has over 30 years broad experience with
integrated oil and gas companies and
independents with a record of success in
acreage evaluation, acquisition and
petroleum discovery. He has been involved
in finding and development of over four
billion barrels of oil equivalent throughout
his career.
Until recently, Mr Henry was International
Exploration Manager for Anadarko
Petroleum, a large independent US oil and
gas explorer and producer, where he was
successful in developing activities
worldwide, developing and implementing
entry strategies, evaluating new venture
projects, undertaking project financial and
portfolio analyses, and conducting
geophysical and drilling activities. Prior to
this he worked with Adobe Petroleum,
Marathon Oil and began his career in 1975
Unacal Corporation.
He is a member of American Association of
Petroleum Geologists and the Petroleum
Exploration Society of Australia.
He has been assisting the company with oil
and gas technical and economic evaluation,
co-ordinating due diligence and planning on
the Golden Eagle Prospect.
GEORGE E. HANDLEY | EXPLORATION
GEOPHYSICIST
George has over 35 years’ experience in
the exploration and development in oil and
gas geophysics.
George was part of the team managed by
Lee Burson at The Superior Oil Co that
analysed the seismic over what became
Troll Field, one of the largest discoveries in
the last 30 years
George has stated
“That there are three aspects of petroleum
exploration that you need in order to find
recoverable hydrocarbons.
Source rock – found in shales rock in the
Paradox Basin
Trap Facies – containing the hydrocarbons
Reservoir Rock – accumulation of
hydrocarbons.
GDN have abundance of source and trap rock in
the prospect area. The structure provides the
means to create reservoir rock, which is evident
in surrounding wells. A significant prospect
with strong upside”.
JERRY K. TREYBIG | PROJECT MANAGER AND
DRILLING CONSULTANT
Jerry Treybig has more than 40 years’
experience in the oil & gas drilling field.
Jerry knows how to plan for and anticipate
drilling and solving problems before they
are encountered, saving time and money
and mitigating risk
He has unparalleled experience with more
than 150 completed projects including: -
expertise with projects in virtually every
domestic oil and gas province throughout
25 states in the USA, including Texas,
Mississippi, Louisiana, Colorado,
Oklahoma, and Wyoming, as well as many
foreign countries.
He has a proven track record involving
complex engineering projects, including
horizontal and multi-lateral wells and many
deep, high temperature, high pressure
wells.
Source: GDN - AFSL: 222440 AC N:081 957 271 6
MARSHALL MELNECHUK | DRILLING ENGINEER
Marshall has more than 30 years’ diverse
oil and gas industry experience, through the
involvement of many high profile projects.
One of his largest projects was building a
specially designed rig and drilling the
Kashagan discovery well in the Caspian
Sea. The Kashagan discovery is estimated
to hold 40 BBOE.
From his experience Marshall believes that
from the geological data shown, the well at
Golden Eagle has the potential to be a
significant gas discovery. With the
experienced team formed he anticipates
drilling a confident and successful well.
Characterisation of Utah’s Natural Gas Reservoirs and
Potential New Reserves
The US Energy Information Administration
projects the demand for natural gas in the
US will grow at an average annual rate of
two percent per year for the next 20 years.
Utah will play a vital role, along with other
Rocky Mountain states, in meeting that
demand.
The Rocky Mountain Region now provides
20 percent of the US natural gas according
to the University of Utah Bureau of
Economic Research. The US Geological
Survey calculates there is 14 to 26 TCF of
non-associated undiscovered gas in the
Uinta Basin and 0.3 to 1.1 TCF of nonassociated
undiscovered gas in the
Paradox Basin.
Utah has produced natural gas since 1891,
though low prices, a lack of a national
market for Rocky Mountain gas, and
expensive drilling, have resulted in slow
development of the area’s natural gas
resource.
The 21st century has brought dramatic
changes to Utah and other Rocky Mountain
gas-producing area’s with a major shift to
the use of a cleaner burning natural gas in
industrial and electric generation.
As a result, there has been a significant
increase in demand for natural gas and an
associated increase in price.
New pipelines have been constructed to
transport the Rocky Mountain gas out of the
region, which have bought more
competitive US pricing to Utah’s natural
gas. Drilling and production from underdeveloped
gas plays and exploration for
new plays, both conventional and
unconventional, will result in a significant
financial contribution to Utah’s economy for
many decades to come.
The Utah Bureau of Economic and
Business Research reported that nearly
US$140m in royalties and taxes was paid
on Utah’s natural gas production in 2001.
UTAH’S BACKGROUND
The majority of Utah’s natural gas reserves
and future potential is in the Uinta Basin,
North East Utah; lower reserves are found
in the Paradox Basin in South East Utah.
(Figures 1 & 2 on pages 7 & 8).
Source USEIA
Source: GDN - AFSL: 222440 AC N:081 957 271 7
Figure 1: Map showing the Uinta and Piceance Basins separated by the Douglas Creek Arch and the Paradox
Basin, Eastern Utah and Western Colorado. The Paradox Basin formed in the Pennsylvanian and the Uinta
Basin formed in the late Cretaceous. They have a small overlay.
Source: GDN - AFSL: 222440 AC N:081 957 271 8
Figure 2: Generalised stratigraphic column of the Uinta, Piceance and Paradox Basins showing the
distribution of petroleum system source rocks and reservoirs (modified from the AUSGS, 2002).
Source: GDN - AFSL: 222440 AC N:081 957 271 9
Recent Developments in Summary
23RD MAY, 2006
· Golden State spuds first well, Paradox
Basin #1, at the Golden Eagle Oil & Gas
Prospect, Utah USA
2ND MAY 2006
· RC drilling planned for the 100% owned
Leonora Gold Project
4TH APRIL, 2006
· Johnston Range Iron Ore Project,
Western Australia – Exploration progress
report
29TH MARCH, 2006
· Field work commences at Thompsons
Uranium Project, Utah USA
Golden State Resources (GDN) Updates
· Approved a change in activities from a
mineral resources exploration company
to an oil and gas exploration and
production company.
· Consolidated the company’s issued
capital with three fully paid shares being
consolidated into one fully paid share,
and reconstructed the issued options on
a similar basis.
· Issued 80,550,333 shares at 20 cents to
fund acquisition and exploration of the
Golden Eagle Oil & Gas Prospect in the
Paradox Basin, Utah, USA.
· Initiated an Iron Ore Exploration Joint
Venture with Polaris Metals at Johnston
Range, north of Koolyanobbing, WA.
· To date has completed well permitting,
site works and deep drilling rig acquisition
for the first well on the Golden Eagle Oil
& Gas Prospect and spudded first well,
Paradox Basin #1.
Golden Eagle Prospect - Onshore Oil & Gas, Utah, USA
Golden State Resources completed well
and access permitting, well location civil
works and access road upgrading on the
Golden Eagle target, Grand County, Utah
and spudded the first well during May 2006.
A drilling rig, a GD800 with a depth
capability of 4,900m, was contracted and
transported to site. The rig is supplied and
operated by DHS Drilling Company of
Casper, Wyoming. DHS has 15 rigs
operating in onshore western USA with
depth capabilities ranging from 7,500’ to
20,000’, and has ample ability to supply
experienced crew and suitable backup
facilities for the planned 4,420m well at
Golden Eagle.
The well is expected to take up to 90 days
to drill and will test a target identified from
seismic data and nearby wells.
Source: GDN - AFSL: 222440 AC N:081 957 271 10
The target structure has an area of up to
2,000 hectares (20 km2) with 11 potential pay
zones within 1,450m of Pennsylvanian (Upper
Carboniferous) section plus 240m of deeper
Mississippian (Lower Carboniferous)
carbonates, commencing from a depth of
2,130m, down to 4,420m.
Independent consultants estimate a midcase
reserve target of 440 BCFE of gas,
with upside to 3 TCFE (3,000 BCFE) for the
maximum 2,000 ha case.
Golden State holds an initial 100% interest
in the well. JV partner Eclipse Exploration
Inc of Denver has the right to back in with a
16.67% working interest after the drilling of
two wells by Golden State. There are state,
federal and overriding royalties of up to
22%.
THOMPSONS URANIUM PROJECT, UTAH, USA
– GOLDEN STATE 100%
Golden State Resources commenced field
work at the Thompsons Uranium Project
during April 2006, the start of the northern
spring. The permitting process for a
planned exploratory drilling programme is in
progress. The programme will follow
previous shallower drilling completed by the
USGS, which intersected uranium at grades
of up to 6% U3O8.
Leases and Location
Golden State Resources holds 100%
interest in 2,703 ha of minerals leases at
Thompsons in Grand County, Utah. The
project is in a high arid desert region of the
Colorado Plateau, 85 km west of the city of
Grand Junction and 300 km south-east of
Salt Lake City. South-east Utah is an area
of established uranium mining with one
current operation and two further projects
currently permitting for production.
Abandoned Ringtail underground uranium mine at
Thompsons
Mining History
The Thompsons district has a history of
uranium mining dating back to 1911,
finishing in the late 1960s. A large number
of abandoned mine workings occur across
the company’s leases, ranging in size from
prospectors’ pits to the significant Ringtail
Mine. Previous mining was underground,
targeting shallow narrow high-grade ore
bodies above the water table.
Previous drilling by the US geological
survey located widespread uranium
mineralisation on the company’s
tenementswith intersection grades of up to
6% U3O8.
View across Golden Eagle Prospect to first well
location
Source: GDN - AFSL: 222440 AC N:081 957 271 11
Exploration Programme
The Company’s exploration programme at
Thompsons is designed to establish the
presence of a broader lower grade
mineralised envelope below the water table
that would be amenable to the low cost, insitu
leaching mining method (“ISL”).
Uranium is predominantly mined in the USA
by ISL, providing a cheaper, safer and more
environmentally benign production method
than conventional mining.
Previous drilling has, in part, defined the
occurrence of the ore-bearing sandstone
lenses, remnants of fossil stream channels,
within the Salt Wash Sandstone member.
Golden State’s planned exploration will
seek to:
· Locate economic mineralisation within the
areas of ore-bearing sandstone already
defined.
· Define the target sandstone beyond the
areas currently defined, in particular
down dip to the north beneath the
overlying Brushy Basin Mudstone
member (green in the following Figure)
and Cretaceous rocks (pink-shading in
following Figure).
Geology of Thompsons Area, showing currently defined area
of ore-bearing sandstone
JOHNSTON RANGE IRON ORE PROJECT
During the quarter, Golden State
Resources concluded an agreement with
Polaris Metals NL whereby Polaris has the
right to earn 70% interest in the iron ore
potential of Johnston Range Project
tenements, 160km north of Southern Cross
(Polaris 70% in joint venture with Leviathan
Resources Ltd 30%). Golden State retains
and continues to explore the gold, nickel
and copper potential.
Polaris’ 70% interest in the Johnston Range
Iron Project can be earned by sole funding
iron ore exploration costs through to
completion of an economic pre-feasibility
study, or alternatively, through the
expenditure of $1,000,000, whichever is the
greater. At Golden State’s option, Polaris
may earn a further 10% interest through
sole funding the cost of completion of a
bankable feasibility study or the expenditure
of an additional $1,000,000 on the
tenements, whichever is the greater.
Should Polaris reach an 80% interest,
Golden State may elect to contribute or to
be diluted pro rata; and should Polaris
reach a 90% interest Golden State may
elect to exchange its 10% interest for a
2.5% gross royalty.
The Yilgarn Province is considered highly
prospective for iron ore deposits, given its
history of large-scale production, with the
Koolyanobbing operation of Portman
Limited currently producing direct shipping
iron ore at a rate of over 5 MTPA. The
Portman operation, which is based on the
Koolyanobbing mine and rail infrastructure
50km north of Southern Cross, also
sources ore from satellite deposits about
100km north of Koolyanobbing, such as
Windarling (60Mt at 63.6% Fe) and Jackson
(47 Mt at 60.9% Fe).
Consulting geophysicists were engaged in
the March 2006 quarter to interpret
aeromagnetic data covering the project and
locate areas considered prospective for
large hematite deposits produced by
replacement of banded iron formations.
During helicopter aerial reconnaissance
using a helicopter, target areas with outcrop
appearance similar to massive hematite
outcrops at the nearby Windarling mine
were observed in places. In addition to
exploring for in-situ hematite deposits
Polaris is investigating detrital and channel
iron targets.
Source: GDN - AFSL: 222440 AC N:081 957 271 12
Chart - Natural Gas traded on NYMEX
Source: Future Source
The USA represents the world’s largest energy market with demand exceeding supply in the
short and long term. Natural gas is currently trading at above US$6.60 per MCF. This is at a
significant premium to gas sales available on the Australian market.
Recent Significant Developments in Summary
23RD MAY, 2006
· Golden State Spuds First Well at the
Golden Eagle Oil & Gas Prospect, Utah
USA.
2ND MAY 2006
· RC Drilling at 100% owned Leonora Gold
Project.
4TH APRIL, 2006
· Johnston Range Iron Ore Project,
Western Australia – Exploration progress
report.
29TH MARCH, 2006
· Field Work Commences at Thompsons
Uranium Project, Utah USA.
· Share price increase to a high of $0.27
during March ‘06 Quarter (35% increase).
Source: GDN - AFSL: 222440 AC N:081 957 271 13
Risks
Despite the advanced exploration status of
Golden State Resources’ projects it is
important to acknowledge that an
investment in Golden State Resources
Limited is still of a speculative nature and
that investors need to be aware of the
potential risk of a volatile share price due to
the company’s commitment for the most
part to a dual commodity and project.
The projects and company will be subject to
all normal long term and short term factors
which affect the market.
Potential investors need to be aware that
normal share market risk conditions apply
including commodity price, currency
fluctuations, sentiment, supply and demand
and general economic outlook.
Normal exploration, development, risks also
apply as well as operating, environmental
and native title risks.
CKL Authorised Representatives
Murray Broun
Chief Executive Officer
Phone: 1300 303 874
Enrico Mattiaccio
Head of Equities
Phone: 1300 303 872
Darryl Yeo
Associate Director
Phone: 1300 855 876
Matthew Corica
Manager of Research
Phone: 1300 303 873
Angelo Tinelli
Research Analyst
Phone: 1300 303 100
Richie Polodna
Senior Investment Advisor
Phone: 1300 303 872
Jonathan Teh
Associate Advisor
Phone: 1300 303 872
Source: GDN - AFSL: 222440 AC N:081 957 271