CANYON RESOURCES LIMITED — Capital/Financing Update 2013

Dec 23, 2013

Canyon Resources Limited ACN 140 087 261 353 Rokeby Road Subiaco WA 6008

www.canyonresources.com.au

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24 December 2013

ASX Announcement

Canyon to Acquire Majority Interest in Highly Prospective Bauxite Licences, Cameroon

HIGHLIGHTS

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• Binding Agreement to acquire up to a 75% interest in two licences in Cameroon, highly prospective for high grade DSO bauxite.

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• Strategically located in an emerging bauxite province of Cameroon.

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• Licences contiguous with the world class Minim Martap bauxite deposit.

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• Operating rail line capable of transporting bulk material such as bauxite passes within 10km of the licences.

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• Several high priority drill-ready targets. Phase 1 drilling planned to commence in March quarter 2014.

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• Negligible upfront cash cost to Canyon, and share dilution minimised by transaction structure.

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• Introduction of a strong project partner, and new major shareholder of Canyon, Altus Group.

Canyon Resources Limited (“Canyon” or “the Company”) (ASX: CAY) is pleased to announce that it has entered into a binding Joint Venture agreement with wholly owned subsidiaries of UK based Altus Strategies Ltd (“Altus Group” or “the Owner”) to acquire up to a 75% interest in the Birsok Bauxite Project ("Birsok Project" or "Project") ("Acquisition") in an emerging bauxite province in Cameroon.

Canyon sees potential for the Birsok Project to be a material part of Cameroon’s emergence as a potential world-class producer of bauxite.

The Birsok Project is located in central Cameroon and is contiguous to the world class high grade Minim Martap bauxite deposit. The Project is comprised of two permits over 1,462km[2] and is located along raised plateaux similar to the nearby Minim Martap deposit. The Project is highly prospective for high grade, low contaminant, DSO bauxite, and importantly is within 10km of the rail line to the Douala port facility.

Upon completion of the Acquisition, Mr David Netherway, the Chairman of Altus Strategies, will join the Board of Canyon. David Netherway is a mining engineer with over 35 years of experience in the mining industry and until the takeover by Gryphon Minerals Limited, was the CEO of Shield Mining Limited, an Australian listed exploration company. David was involved in the construction and development of the Iduapriem, Siguiri and Kiniero gold mines in West Africa and has extensive mining experience in Africa, Australia, China, Canada, India and the former Soviet Union. He was, until 19th December, 2013, the Chairman of Afferro Mining Inc. which discovered and has recently been developing the Nkout iron ore deposit in Cameroon. Afferro completed its Scheme of Arrangement with IMIC plc on that date.

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Figure 1 - Location plan show licences and infrastructure

Managing Director Phillip Gallagher said,

“The acquisition of the Birsok Bauxite Project represents a transformational opportunity for Canyon. The Project offers potential to quickly define an initial resource for a low spend, with the objective of establishing a high grade DSO bauxite operation.

Canyon has evaluated a significant number of acquisition opportunities over the last year and this opportunity has been the standout due to the potential high grade and scale of the project, the existence and accessibility of nearby rail infrastructure and multiple port options, and a deal structure that minimises the up-front cost for Canyon and maximises the in-ground expenditure.

We view this as a strategic opportunity to expand the commodity exposure of Canyon’s shareholders for minimal upfront expenditure but with significant potential upside, whilst remaining focused on the discovery and development of a world-class minerals project in West Africa.

In addition, Canyon is delighted to welcome the vendor group, Altus Strategies, as shareholders of Canyon. The Altus Group brings a wealth of resource experience and industry and investment market contacts to Canyon.”

About The Birsok Project

The Project is located near the town of Ngaoundal in central Cameroon. The rail line, which transports both freight and passenger trains passes within 10km of the Project area.

Access to Ngaoundal is via sealed road from the capital Yaounde and then on laterite road to the Project area.

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Altus has completed an initial rock chip sampling program which has confirmed the presence of high grade gibbsite hosted bauxite and indicated the potential for a premium DSO ore.

From 2,485 observation points a total of 634 rock chip samples have been taken and analysed by XRF by the Altus Group. Analysis details are provided in Appendix 1. Sampling completed by the Altus Group has shown the following:

• Four plateau style targets identified;

• 58% of analysed samples recording over 50% Al2O3;

• Highest grade assay returned of 68.2% Al2O3;

• 80% of all samples to date returned grading above 35% Al2O3;

• Contaminant levels remain low for samples with Al2O3 grading above 50%;

• Average SiO2: 2.64%

• Average TiO2: 4.63%

• Average Fe2O3: 6.21%.

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Figure 2 – Bauxite rockchip results on a greyscale elevation back ground.

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Figure 3 - Grab sample with >60% Al2O3

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Figure 4 - Birsok bauxite plateaux

The Target Bauxite Plateaux have been outlined by a combination of geological reconnaissance, elevation modelling and sampling of outcrop, boulder and block and float material. The Target Bauxite Plateaux highlight primary areas of abundant bauxite outcrop but also secondary areas of sub-crop and transported float bauxite material.

The Birsok Project has a number of competitive advantages that the Company considers bode well for a future commercial development of the Project including:

• Potential for DSO grade bauxite;

• Proximal (~10km) to and potential for access to an operating rail line capable of transporting commercial quantities of bauxite;

• Multiple port options;

• Scale for long-life operation; and

• Several options for development of the Project.

Canyon’s Planned Work Programme

Initial exploration by Canyon will involve detailed field reconnaissance to optimise the best bauxite target horizons and access for drilling. This will be followed by a first pass aircore drilling program to confirm the surface extent of the bauxite plateaux but also to provide an understanding of the depth profile.

Canyon will benefit from the ongoing involvement of the geological team that has been working on the Birsok Project for the past 12 months.

The Birsok Project has a database of previous exploration results, allowing Canyon to quickly commence drilling activity after completion of the acquisition.

An exploration camp has already been established, and priority drill targets identified. Aircore drilling is planned to commence in the quarter ending March 2014.

Canyon considers that given the nature and near-surface position of the bauxite mineralisation, the Company will be able to very quickly move the project towards JORC resource status.

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Figure 5 – Bauxite rock chip sample types on a greyscale elevation background.

Infrastructure in Place and Under Development

Rail

A rail line is located approximately 10km from the Project area and initial investigations by the Company with the rail operator have indicated that the rail line has capacity and the capability to transport commercial quantities of bauxite.

The railway line is owned by the Cameroon Government but is operated by multi-national logistics company, Bollore Africa Logistics, through its local rail subsidiary company, Camrail. The railway line has undergone a number of upgrades between 1999 and 2007 with €108M invested on infrastructure and maintenance. A €193M government guaranteed infrastructure financing to 2020, partly funded by the World Bank, is underway[1] .

As part of Canyon’s due diligence the Company met with Camrail in Cameroon. Although discussions were introductory, Camrail indicated the rail line was capable of carrying bulk commodities, there was available capacity and there is a commercial willingness to further discussions. Canyon has commenced discussions with an international rail consultant to provide a scoping study of the rail infrastructure.

1 ppiaf.org

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Figure 6 - Freight train on the Camrail network Figure 7 - Ngaoundal station near the Birsok Project

Port

The port of Douala (also operated by Bollore Africa Logistics) is in operation on the coast of Cameroon and is serviced by the existing Camrail rail line. The Government of Cameroon is currently constructing a new deep water port at the town of Kribi, approximately 100km to the south of the Douala Port. The construction of the Kribi deep water port is at an advanced stage and it is due to commence operations in 2014.

A new rail spur from the existing line to Douala to the Kribi Port is planned to be constructed within 3 years which will provide direct access to the new deep water port.

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Figure 8 - Artists impression of completed Kribi deep water port

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Figure 9 - Kribi deep water port October 2013, scheduled for 2014 opening

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About Cameroon

Cameroon is located in Western Central Africa. It is bordered by Nigeria to the west, Chad to the northeast, the Central African Republic to the east, and Equatorial Guinea, Gabon, and the Republic of the Congo to the south.

Cameroon is part of the Commonwealth of Nations and is officially bilingual, speaking both English and French. Compared with other African nations, Cameroon is regarded as being both socially and politically stable. This has resulted in the development of infrastructure such as roads, railways and ports as well as industries such as agriculture, oil and gas and mining projects.

Cameroon is regarded as being pro-investment and pro-mining with various large mining project developments underway including Sundance Resources’ Mbalam-Nabela Iron Ore Project and Geovic Mining’s Cobalt-Manganese–Nickel Project.

Afferro Mining, owner of the Nkout Iron Ore Project in Cameroon has in December 2013 been subject to a successful US$200M takeover by the International Mining and Infrastructure Corporation plc.

ASX listed Legend Mining sold its Ngovayang iron ore project in Cameroon to India's Jindal Steel and Power for A$17.5 million in cash in November 2013.

The Acquisition Terms

Subject to the satisfaction of certain conditions precedent (see below), Canyon can earn up to 75% of the Birsok Bauxite Project as follows:

Initial Consideration

• A cash payment of A$150,000.

• The issue of 8,000,000 Canyon shares to Altus Group (Initial Consideration Shares), which have been agreed to be subject to voluntary escrow until the earlier of;

• (i) the date the Company completes the requirements to earn its initial 51% interest; or (ii) 1 year from the date of issue of these shares.

Earn 51% of the JV Company

• The expenditure by Canyon of A$2 million on the Project over a two (2) year period, which shall include a minimum of 10,000m of aircore or equivalent expenditure on RC (reverse circulation) or diamond drilling.

Earn 75% of the JV Company

• The expenditure by Canyon of an additional A$4 million on the Project over a further three (3) year period.

At 75% Altus may elect to contribute and if they elect not to contribute they can be diluted to 10% by the expenditure of an additional A$1.5 million for each 5% interest. If Altus is diluted to 10%, Canyon can elect to buy out the remaining 10% at a value to be determined by an independent valuation.

Canyon is required to spend a minimum of A$0.5 million if it chooses to withdraw from the agreement.

A 5% net profit from the Birsok Project (Royalty) is held by a third party and Canyon may purchase the Royalty for a cash payment of US$1 million at any time.

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Potential Deferred Consideration

Upon achievement of certain value-adding milestones to the project, Altus Group may earn deferred consideration, as follows:

• A$1.5 million worth of Canyon shares, at a deemed issue price equal to the 45 trading day volume weighted average price of Canyon’s ordinary shares trading on ASX ending on the day immediately prior to the date of satisfaction of this milestone, upon the definition of a minimum 150Mt JORC compliant resource with a minimum grade of 45% Al2O3 and a maximum of 2% reactive SiO2 (as opposed to total SiO2 content); and

• A$1.5 million worth of Canyon shares upon the completion of a feasibility study (to a bankable or definitive level), the grant of a mining lease on the Project, and the completion of a capital raising by Canyon to provide for 100% of Canyon’s required capital expenditure to reach first production of bauxite from the Project, to be issued at the same price as that capital raising.

Conditions Precedent

The Acquisition is subject to the following conditions precedent:

• The renewal of the Birsok License;

• Canyon obtaining all necessary shareholder approvals required to issue the Initial Consideration Shares and any other approvals required by ASX;

• Canyon and the Owner obtaining all statutory and regulatory approvals and any other third party consents or waivers which are necessary or desirable to complete the Acquisition;

• the absence of any material adverse change in the financial and operational condition of the assets of each of the parties; and

• Canyon announcing through ASX a capital raising of not less than A$650,000 (Capital Raising) in the 30 business days following announcement of the Acquisition, on terms acceptable to Canyon. This condition may be waived by Canyon in its sole discretion under the Agreement.

The Conditions Precedent are to be satisfied by 30 April 2014 or can be extended by mutual agreement between the parties.

Capital Raising

The Company is pleased to announce that it will undertake a non-renounceable Entitlement Issue to raise up to approximately A$1.6 million (“Entitlement Issue”) to allow eligible shareholders recorded on its register at 7 January 2014 the opportunity to acquire new shares and options in Canyon.

Canyon will offer all eligible shareholders one (1) share for every two (2) shares held on 7 January 2014 (“the Record Date”), at the discounted price of 4.5 cents per share, which represents a discount of 25% to Canyon’s last share price prior to the announcement of this Acquisition. In addition, all shareholders entitled to and who accept the Entitlement Issue will receive one (1) free attaching option for every share subscribed for in the Entitlement Issue, with the options having an exercise price of $0.06 each and an expiry date of 31 January 2017. The Company will apply for the listing of the free attaching options.

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Funds raised through the Entitlement Issue will be primarily directed towards the initial exploration of the Birsok Project and the continued exploration of Canyon’s Burkina Faso gold projects.

About Bauxite

Bauxite is the primary ore for the production of alumina and ultimately aluminium. Bauxite is usually strip mined as it usually found at or near the surface of terrain with little or no overburden. Bauxite is first refined to alumina and the alumina is then smelted to form aluminium.

Global production of aluminium has grown at an average of 5.2% per year since 2000[2] , to a total of 45 million tonnes in 2012. During this time Chinese aluminium production has grown at an average of 18% per year.

China is the world’s largest market for bauxite, importing approximately 60% of its bauxite requirements. In recent times imports of bauxite into China have increased due to the increase in Chinese refineries’ capacity to produce aluminium. It is expected that bauxite imports into China will continue to grow as demand grows and domestic production of bauxite will not be able to keep pace with demand.[3]

Indonesia, which in 2012 supplied over 60% of China’s bauxite imports, has recently implemented legislation that from 2014 will restrict exports and encourage in-country processing of the bauxite mined in the country. It is expected that this decrease in available bauxite will create an upward pressure on future bauxite prices.

North America and eastern and western Europe are also major importers of bauxite.

A Notice of Meeting will be mailed to shareholders in the coming weeks in respect of the Acquisition.

Hartleys Limited is Corporate Advisor to Canyon in relation to the Acquisition.

For further information, please contact:

Phillip Gallagher Dale Bryan Managing Director Director–Corporate Finance Canyon Resources Limited Hartleys Limited Phone +618 6143 4256 Phone: +618 9268 2829

Competent Persons Statement

The information in this report that relates to Exploration Targets, Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Mr Rhoderick Grivas, an employee of the Company and a Competent Person who is a Member of The Australasian Institute of Mining and Metallurgy and the Australian Institute of Geoscientists. Mr Grivas has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Grivas consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

2 hdrsalva.com/market-news/china’s-growing-appetite-for-bauxite

3 hhydro.com

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APPENDIX 1

JORC TABLE 1

Section 1 Sampling Techniques and Data

Criteria	Explanation	Notes
Sampling techniques	Nature and quality of sampling (eg cut channels, random chips, or specific specialised industry standard measurement tools appropriate to the minerals under investigation, such as down hole gamma sondes, or handheld XRF instruments, etc). These examples should not be taken as limiting the broad meaning of sampling. Include reference to measures taken to ensure sample representivity and the appropriate calibration of any measurement tools or systems used. Aspects of the determination of mineralisation that are Material to the Public Report. In cases where ‘industry standard’ work has been done this would be relatively simple (eg ‘reverse circulation drilling was used to obtain 1 m samples from which 3 kg was pulverised to produce a 30 g charge for fire assay’). In other cases more explanation may be required, such as where there is coarse gold that has inherent sampling problems. Unusual commodities or mineralisation types (eg submarine nodules) may warrant disclosure of detailed information.	From a total of 2,485 observed bauxite location 635 samples were collected for analysis. The size and weight of sample was a nominal 1 kg.  A review of the rock chip samples submitted for analysis has shown approximately 35% of all samples were reported to have been collected from outcrop as opposed to block/boulder (20%) and float (42%). Block/boulder are predicted to be proximal to outcrop with float more distal, but not likely to have been transported significant distances.
Drilling techniques	Drill type (eg core, reverse circulation, open-hole hammer, rotary air blast, auger, Bangka, sonic, etc) and details (eg core diameter, triple or standard tube, depth of diamond tails, face-sampling bit or other type, whether core is oriented and if so, by what method, etc).	No drilling has been conducted on the projects. Limited trial back pack augering has occurred, but no material has been sent to assay. At Minim Martap, aircore drilling has been completed to a non JORC resource stage and provides indications of mineralisation strike, width and depth.
Drill sample recovery	Method of recording and assessing core and chip sample recoveries and results assessed. Measures taken to maximise sample recovery and ensure representative nature of the samples.  Whether a relationship exists between sample recovery and grade and whether sample bias may have occurred due to preferential loss/gain of fine/coarse material.	Trialled backpack augered material has been collected and the relevant data recorded. However this was primarily for visual confirmation and not for assay.
Logging	Whether core and chip samples have been geologically and geotechnically logged to a level of detail to support appropriate Mineral Resource estimation, mining studies and metallurgical studies. Whether logging is qualitative or quantitative in nature. Core (or costean, channel, etc) photography.  The total length and percentage of the relevant intersections logged.	 Rock chip samples were logged for lithology, colour, alteration and weathering. Reference to outcrop, block, boulder, float was detailed in remarks.  Photos of rock sample were taken of many observed locations
Sub-sampling techniques and sample preparation	If core, whether cut or sawn and whether quarter, half or all core taken. If non-core, whether riffled, tube sampled, rotary split, etc and whether sampled wet or dry. For all sample types, the nature, quality and appropriateness of the sample preparation technique. Quality control procedures adopted for all sub-sampling stages to maximise representivity of samples. Measures taken to ensure that the samplingis	No subsampling techniques were used. Rock chip samples were collected and whole rock was crushed for analysis.

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Criteria	Explanation	Notes
	representative of the in situ material collected, including for instance results for field duplicate/second-half sampling. Whether sample sizes are appropriate to the grain size of the material being sampled.
Quality of assay data and laboratory tests	The nature, quality and appropriateness of the assaying and laboratory procedures used and whether the technique is considered partial or total. For geophysical tools, spectrometers, handheld XRF instruments, etc, the parameters used in determining the analysis including instrument make and model, reading times, calibrations factors applied and their derivation, etc. Nature of quality control procedures adopted (eg standards, blanks, duplicates, external laboratory checks) and whether acceptable levels of accuracy (ie lack of bias) and precision have been established.	Samples were submitted to OMAC laboratory in Ireland for analysis, formally a Stuart Group Lab now owned by ALS Global. Samples were weighed, crushed so 70% passed -2mm then oversize samples were riffle split to 1kg samples and pulverised so 85% passed 75 micron.  Samples were analysed by bauxite fusion and XRF finish and furnace loss of ignition. Technique is international recognised for bauxite.  Owner In-house QA-QC was conducted on the laboratory QC samples (Standards, Blanks and Lab Duplicates), Micromine Geobank was used to produce the plots.
Verification of sampling and assaying	The verification of significant intersections by either independent or alternative company personnel. The use of twinned holes. Documentation of primary data, data entry procedures, data verification, data storage (physical and electronic) protocols. Discuss any adjustment to assay data.	Canyon submitted 31 rock chip samples for analysis that were collected from the Djombi target. Observations were recorded in hard copy then electronically data entered. Hard copy is kept and digital copy is backed up. Sample pulps have been retained.
Location of data points	Accuracy and quality of surveys used to locate drill holes (collar and down-hole surveys), trenches, mine workings and other locations used in Mineral Resource estimation. Specification of the grid system used. Quality and adequacy of topographic control.	Rock chip samples were located using a standard hand held GPS with reported accuracy of less than 5 metres in the X,Y plane. This is appropriate for this stage of the exploration.
Data spacing and distribution	Data spacing for reporting of Exploration Results. Whether the data spacing and distribution is sufficient to establish the degree of geological and grade continuity appropriate for the Mineral Resource and Ore Reserve estimation procedure(s) and classifications applied. Whether sample compositing has been applied.	 Sample spacing varied greatly however does provide an indication of the areal extent of the bauxite. Spacing is sufficient only for Exploration Target size only.  No sample compositing has been applied.
Orientation of data in relation to geological structure	Whether the orientation of sampling achieves unbiased sampling of possible structures and the extent to which this is known, considering the deposit type. If the relationship between the drilling orientation and the orientation of key mineralised structures is considered to have introduced a sampling bias, this should be assessed and reported if material.	Samples were surface rock chip samples, some from outcrop, boulders, block or float.
Sample security	The measures taken to ensure sample security.	 Samples were submitted by the permit owners employees and chain of custody was recorded. Once submitted to the prep lab samples were entered into the Micromine Geobank sample tracker programme by the owner.
Audits or reviews	The results of any audits or reviews of sampling techniques and data.	The owner conducted a review / visit of the Lab facilities in Ireland in 2012 and completed periodic unannounced drop in at the Cameroon PrepLab.

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JORC TABLE 1

Section 2 Reporting of Exploration Results

Criteria	Explanation
Mineral tenement and land tenure status	Birsok Permis de Recherche 198, and Mandoum Permis de Recherche 174 are currently held by Aucam SA ,signatory to the JV agreement with Canyon whereby Canyon can earn 75% in the parent company of Aucam SA or in the parent of any company to which these licences are transferred. Birsok is subject to a renewal currently lodged with the government. Mandoum is renewed until Oct 2014. Legal due diligence on the tenure and holding companies was conducted by independent Cameroon lawyers during Dec 2013. There is no impediments to exploration, as exploration can continue while Birsok is subject to renewal. Renewal of Birsok is a condition precedent of the agreement with the owners.
Exploration done by other parties	The Birsok and Mandoum projects are adjacent to the Minim Martap bauxite deposit which was reportedly drilled in 2009. Bauxite plateaux continue onto the projects. Bauxite mineralisation was initially reported by the government and has been followed up by Aucam with 635 bauxite samples from 2485 observations.
Geology	Mineralisation type is laterite bauxite evident on and adjacent to plateaux.
Drill hole Information	No drillholes have been conducted, although limited trial ‘back pack’ augering (~1.5cm diameter) has been undertaken with no samples sent to assay.
Data aggregation methods	No data aggregation methods have been used.
Relationship between mineralisation widths and intercept lengths	No downhole lengths have been quoted.
Diagrams	Diagram provided show sample locations results and sample type spatially with reference to coordinates and a scale. This is appropriate for this early stage exploration.
Balanced reporting	Analysis of the rock chip samples submitted for analysis has shown approximately 35% of all samples were reported to have been collected from outcrop as opposed to block/boulder (20%) and float (42%). Block/boulder are predicted to be proximal to outcrop with float more distal.
Other substantive exploration data	None to report.
Further work	Bauxite rock chip results have been reported over a large area of the projects. Further exploration will involve geological reconnaissance to confirm the primary targets followed by aircore drilling to test the depth extent of the mineralisation. Access roads maybe required in some instances and approval is likely to be required from local and federal government departments.