CAZALY RESOURCES LIMITED — Capital/Financing Update 2005

Feb 16, 2005

17th February 2005 ASX Release

SPIN OUT OF BASE METAL PROJECTS TO GRAYNIC METALS LTD.

The Board of Cazaly Resources Limited (ASX Code: CAZ) has recently agreed to divest an 80% interest in Cazaly's Quartz Circle, Jutson Rocks and Northampton Projects to Graynic Metals Ltd ("Graynic").

Independent advisors are currently being engaged and it is envisaged that Cazaly shareholders will receive an in speci distribution of shares in Graynic totaling 10,000,000 shares being approximately 39% of the issued capital in Graynic following a planned \$2.5M raising and listing on the ASX. The requisite documentation is currently being prepared to requisition an Extraordinary General meeting ("EGM") and this will contain full relevant details of the proposed transaction.

Cazaly is solely focused on the Kunanalling/West Kalgoorlie project and significant encouragement has been received from recent exploration. With a large ongoing exploration programme underway and development planned to start at Catherwood it was decided to divest the above base metal/PGE projects to a dedicated explorer.

Whilst Cazaly is cognizant of the very strong outlook of base metals including copper, nickel. lead and zinc we are also aware that our very strong land position and existing resource base at Kunanalling demands focused exploration.

Full details of the projects being divested are on the attached Project Summary.

Cazaly remains well funded with equity in and joint ventures with Great Australian Resources Ltd, Scimitar Resources Ltd and Drake Resources Ltd as well as being in joint venture with Consolidated Minerals Ltd.

Yours sincerely.

Nathan McMahon

Managing Director

Information in this report pertaining to mineral resources and exploration results was compiled by Mr. C.B Jones who is a Member of the Aus.I.M.M with not less than 5 years experience in the relevant fields, and who consents to the report appearing in the form and context in which it appears.

Project Summary

Graynic Metals Ltd has secured an extensive portfolio of tenements located in Western Australia which display extensive base metal mineralisation and have yet to be fully explored.

QUARTZ CIRCLE PROJECT

The Quartz Circle project is situated in the Eastern Pilbara Region of Western Australia and covers approximately 65 square kilometres of ground prospective for base metals and gold. Significant targets coincident with surface and shallow copper-gold and lead-zinc mineralisation exist within the project. Tenements comprising the project include P46/1360 to 1366, E46/541 and E45/2602.

The area lies within the McPhee Dome of the Archean Pilbara Craton of Western Australia. The McPhee Dome comprises volcanic rocks of the Warrawoona Group, and hosts a variety of hydrothermal vein, stratabound volcanic and porphyry hosted gold and base metal styles of mineralisation. In particular the project comprises rocks of the Duffer Formation which comprises a succession of dacitic tuffs, lavas and agglomerates with subordinate rhyolite, basalt and chert.

Mineralisation throughout the area is peripheral to large syn-volcanic tonalite porphyry intruded into a sequence of felsic volcanics. A classic base metals zonation is observed around the intrusive with firstly a halo of Cu-Au mineralisation, as defined by an extensive circular Cu-Au soil anomaly and the presence

of widespread copper oxides observable at the surface, surrounded further out by a large Pb-Zn soil anomaly. Alcoa in the 1970's conducted some percussion drilling within the Pb-Zn anomalous zone intersecting significant zones of sulphide with traces of galena and sphalerite

(the Pb/Zn prospect). Intercepts included; 17.74m @ 16.1% Zn and 7.5m @ 16.0% Zn with elevated lead and cadmium.

Later drilling by RGC and Herald throughout the anomalous Cu-Au area resulted in the delineation of a shallow, small secondary copper resource estimated to be approximately 127,100T $@$ 4.1% Cu with associated low grade gold. Primary mineralisation appears to be associated with a hydrothermal quartz-sulphide vein system. Significant intercepts within this zone include; 38m @ 4.04% Cu and 34m @ 5.51% Cu. Very little exploratory drilling around this resource and at depth has been undertaken. Where drilling has occurred, for example 230 metres along strike to the south, significant copper and gold results have been recorded including; 4m @ 9.3% Cu + 13.3 g/t Au and 4m @ 1.96% Cu + 11.6 g/t Au whilst outcropping veins along strike to the north returned up to 2.75% Cu & 18.5 g/t Au.

In 2002 MIM Exploration conducted a geophysical survey utilising their state-of-the-art geophysical data acquisition system (MIMDAS). MIMDAS is primarily used to acquire Induced Polarisation data in the search for deeply buried disseminated base metal deposits. The survey was particularly successful delineating anomalies coincident with the surface Cu-Au mineralisation previously outlined. The area subsequently became a priority target for MIM.

Following MIM's takeover by Xstrata in 2003, the project was dealt out to Straits Resources Limited who conducted a short drilling programme comprising just 4 RC/Diamond core holes in May, 2004. Only 1 drillhole (QCRD001) was drilled into the large circular copper in soils anomaly. The other holes targeted a shallow conductive chargeable anomaly further to the west beneath previous anomalous intercepts which Straits considered may have represented shallow chalcocite mineralisation.

The Circle of Quartz

All holes intersected felsic volcanic lithologies, varying from rhyolites to dacites with minor porphyritic felsic intrusions. Anomalous Cu and Au values were intersected in all holes. Disseminated chalcopyrite within broad zones of silica alteration was widely observed in all holes indicative of the presence of a potentially large Cu-Au mineralised system. QCRD0001 was drilled into the prominent circular copper anomaly and returned a best copper result of 10.05m @ 0.22% Cu recording minor disseminated chalcopyrite. Several significant gold intercepts were also returned including $3.22$ m @ $1.20$ g/t Au and $22.66$ m @ $0.48$ g/t Au associated with strongly silica-pyrite altered dacite.

In December 2004 Cazaly drilled 5 RC holes into a second copper in soils anomaly situated immediately to the west of the circular anomaly. Due to limited rig availability no drilling was able to be conducted into the main circular anomaly. This Western Anomaly has a coincident MIMDAS chargeable anomaly associated with it. The drilling encountered a buried intermediate intrusive body which displayed wide zones of brecciated and sulphidic, mostly pyrite, material. The best copper mineralisation of significance noted came from OCRC068 which was a deep vertical hole drilled into the more highly charged part of the MIMDAS anomaly. Extensive low order copper mineralisation was encountered (ie; $63m \ (\omega)$ , 0.19% Cu) were intersected. Further to the south below a gold in soil anomaly again extensive low tenor grades were encountered (ie; $84m$ (a) 0.20 g/t Au).

The mineralisation encountered indicates the potential presence of a large mineralising system in the area associated with an intermediate intrusive. Further work is required to better understand the large mineralising system apparent in the area and in particular exploration should focus on the large circular copper anomaly.

More regionally a second area to the north of Quartz Circle proper was targeted by Cazaly as potentially being a look-alike base metal target. The area lies just 7km to the north and was targeted from assessment of satellite imagery. A large circular feature was noted which, in October 2004, was subsequently tested by a programme of soil sampling. A resultant large circular copper-gold anomaly was discovered measuring 2.5 by 3.5 km in size. Peak values were 143ppm Cu and 275ppm Au. Au and As also define a moderate NE trending pattern and As shows an east-west zonation. No further work has been conducted to date and a detailed assessment of the data is required including field investigation of the results.

The Quartz Circle project clearly demonstrates 'textbook' style base metal zonation around a syn-volcanic intrusive within a felsic volcanic pile. Surface and near surface secondary mineralisation is suggestive of a large mineralised system while results from recent geophysical surveys have highlighted anomalies consistent with a disseminated sulphide rich mineralisation at depth. Additionally early work to the north of the area has highlighted a second area of potential interest.

JUTSON ROCKS PROJECT

The Jutson Rocks project comprises two contiguous EL's $(E38/1540 \& E38/1541)$ located 125km northeast of Laverton on the eastern extremity of the north-eastern portion of the Eastern Goldfields Province. The project area covers 40 contiguous kilometres of the NNW striking Jutson Rocks Greenstone Belt, averaging 8.7km in width. The project excludes a small group of tenements that surround the Chapman's Reward/Jutson Rocks workings but otherwise covers the vast majority (320 sq km) of the greenstone belt. The region has been subjected to limited modern exploration and the anomalies discovered to date have undergone only superficial exploration attempts.

Jutson Rocks Project

Historically a State Prospecting Party first discovered visible gold in prospecting pits at Chapman's Reward with selected sampling assaying up to 201g/t Au. Sampling of quartz veins at Lang's Find returned assays of 208g/t Au and 165g/t Au. In 1971 Kennecott Explorations (Australia) Pty Ltd undertook exploration with initial costeaning over komatiites assaying

890ppm Ni and 165ppm Cu. In addition, a costean sample from the interpreted komatiite hangingwall contact assayed 7000ppm Ni and 504ppm Cu. No further work to test these geochemical anomalies was undertaken.

Exploration by Helix Resources and Elmina from the early 1990's to 2002 included programmes of soil, stream and rock chip geochemistry. Early work identified mineralisation at Jutson Rocks (20.5g/t and 15.8g/t Au) and Mount Cumming (8.4g/t Au, 3.2% Cu and 3g/t Ag). Additionally a pegmatite at Jutson's Rock assayed 1.31g/t Pt and $0.77g$ /t Pd. Later work delineated anomalous PGE's in the Mount Warren and Mount Cornell Sills of the Mount Cumming Mafic Complex.

The Mount Warren PGE anomaly is roughly elliptical and is related to a 25m wide stratigraphic horizon within the gabbroic portion of the sill, situated between 50m and 100m above the gabbro-pyroxenite contact. The sampling defined anomalous PGEs $\leq$ 1ppb Pt + Pd over five km strike length. In addition, an anomalous copper horizon occurs approximately 50m stratigraphically above the PGE horizon. Follow up rock chip channel sampling recorded up to 226ppb Pt + Pd over one metre, in a PGE anomalous zone between three and eleven metres in width, for a strike of over 2000m along the eastern flank of the sill. 1500m strike of this flank occurs in Graynic Metals' tenements.

The Mount Cornell PGE anomaly is approximately two km in strike length, and, due to its shallow dip, occurs over a width of 500m. The anomalous horizon also occurs in a similar stratigraphic position to the Mount Warren anomaly, ie, within the gabbroic portion above the pyroxenite. Whilst most of the anomalous horizon occurs outside Graynic Metals' tenements the extensions together with the remainder of the sill, occur in Graynic Metals' ground.

One line of vacuum drilling located six km south of Mount Warren tested an interpreted komatiite sequence and intersected 71ppb $Pt + Pd$ , coincident with 4840ppm $Cr$ , 815ppm Ni and 104ppm Cu, occurring in shallow ironstone material which may represent a nickel sulphide gossan. The anomaly remains open along strike to the northeast and southeast. Further mapping, rock chip sampling and RAB/Vacuum drilling is recommended as these early results are regarded as particularly encouraging.

More recently Helix Resources announced (ASX: 18 January, 2005) highly anomalous results from the nearby Mt. Venn mafic/ultramafic intrusion. Mt Venn lies immediately to the southeast of the Company's ground within the Jutson Rocks greenstone belt. Preliminary geological

mapping and rock chip sampling over an 8km strike extent produced highly anomalous results of up to 8.7% Cu, 0.34% Ni and 0.14g/t PGM (Pt + Pd).

Potential for extensive gold mineralisation occurs in association with major regional structures. The Jutson Lineament extends throughout the belt and, with subsidiary shears, is associated with known gold mineralisation at Lang's Find, Chapman's Reward & near Rutter's Soak. At Lang's Find, the shears narrow and terminate at EW trending quartz veins and carry gold and copper sulphides. Following initial encouraging gold-in-soil results Elmina conducted an extensive soil campaign (targeting Au with some Ni & Cu analysis) over previously identified anomalous areas resulting in the discovery of four main anomalous clusters at Lang's Find, SW of Mt Cumming, west of Rutter's Soak and east of Mt Scott. The peak gold value returned 720ppb Au being located 250m east of the above rock chip sample of 8.4g/t Au.

NORTHAMPTON PROJECT

The Northampton Project comprises exploration licence applications E66/49, covering a total of 70 graticular blocks over an area of approximately 200 square kilometres. The project is situated 430 kilometres north of Perth and extends from 12 to 60 kilometres north of Geraldton. The area covers the majority of the historically significant lead and copper producing centres in the Northampton and Nabawa areas of the Northampton Mineral Field.

Most of the recorded lead-zinc-silver mines were discovered and worked in the period 1865 to 1890 but production records for this period are poor. Records for the period 1899 -1967 show that 56,739.39 t of metallic lead. 11.35 t of zinc and 5,896.84 ounces of silver were produced from the Northampton and Nabawa centres from 324,561.3 t of ores and concentrates. The latter recorded output was intermittent, being linked to periods of higher lead prices. Production was significant between $1910 - 1927$ and the 1950's. Recorded copper production from abandoned mines within the project area is estimated at $2,522.54$ t of contained copper from 28,338.7 t of copper ore and concentrates. Again, periods of production were intermittent, with the majority of recorded production occurring in the 1920's.

Zinc was generally avoided by the early miners and left in the ground due to metallurgical problems. However, the occurrence of zinc is widespread but currently poorly defined in detail. Zonation in the distribution of lead and zinc mineralisation at a number of abandoned mines

allowed lead ores to be preferentially mined and there is evidence to suggest that the silver content of mineralisation enriched in zinc is higher than in the more commonly mined lead ores.

The project covers a significant proportion of the Proterozoic Northampton Complex which forms a partly fault bounded up thrown block along the western margin of the Archaean Yilgarn Craton. Dominant rock types within the Northampton Complex comprises granulite gneiss, granite and migmatite folded about northwest trending axes. Since the discovery of lead deposits in 1848, the origin and structural control of the base metal vein deposits have remained controversial as a result of the lack of detailed geological studies and uncertainty concerning the age of base metal mineralisation.

Known lead-zinc-silver and copper mineralisation of the Northampton Complex is associated dominantly with north-northeasterly trending brittle ductile shear zones in granulite gneiss. Most mineralised occurrences form lensoid veins near the margins of the shear zones or a re associated with breccia zones where the shear zones intersect or bifurcate.

Recent studies suggest that base metal vein-type mineralisation resulted from fluids circulating through the Northampton Complex driven by heat generated from hot spot activity which attended the intrusion of the late Proterozoic dolerite dyke swarm. However, some remobilisation of the mineralisation into late extension veins may have occurred.

Regional exploration based on conceptual stratiform base metal models was carried out for the first time during the 1980s. Regional exploration programmes examined the possibility that veinstyle lead-zinc may occupy the faulted eastern margin of the complex beneath Perth Basin sediments. The development of sediment-hosted deposits was also considered to be a possibility. Airborne magnetic and electromagnetic (GEOTEM) surveys were carried out to locate structurally and stratigraphically favorable areas. These were followed up with ground magnetics and rotary air blast drilling and geochemistry. The results provided evidence for fluid movement of the Proterozoic/Ordovician unconformity.

Over portions of the Northhampton Block exploration work was undertaken focused on locating stratiform Broken hill style Pb-Zn-Ag massive sulphide deposits and to a lesser extent, vein-type targets and mineralisation related to the faulted eastern margin of the Northampton Block. The programme took a regional approach in defining prospective targets for base metal mineralisation. Follow up ground investigation over selected conductive geophysical targets took the form of a phased assessment using variously: ground magnetic and electromagnetic surveys,

mapping, gridding, auger sampling and/or shallow rotary air blast drilling. Limited diamond drilling was carried out at some of the more advanced prospects.