MCS SERVICES LIMITED — Interim / Quarterly Report 2012

Jan 30, 2012

Red Gum Resources Limited Operations Report for the Second Quarter from 1 October 2011 to 31 December 2011

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HIGHLIGHTS

• Red Gum Resources Limited (“the Company”, ‘Red Gum”) successfully listed on the ASX on 17 January 2012 (ASX code: RGX), raising $4,003,564

• Successful negotiation of a two year land access agreement with the community at the Company’s La Negra project in northern Chile

• Reinterpretation of geophysical data from La Negra has been completed and a number of drill targets defined

• Drilling has now commenced at the La Negra project in Chile

• Red Gum’s Chile office established in Santiago, the capital

CORPORATE UPDATE

The December 2011 quarter has seen the Company move from strength to strength with the Initial Public Offering (“IPO”) and a number of favourable announcements having been made recently, with more developments to come, defying the current global market trends.

The Company has been actively progressing its’ key projects in Chile and Peru and in particular:

Exploration activities

The La Negra Project- Chile

The Company purchased an option to acquire 100% of La Negra in northern Chile project through its wholly owned Chilean subsidiary. The La Negra Option was renegotiated with the Vendor and effectively an extension for completed payment of the initial option fee to 31 January 2011 was granted and subsequently properly executed by the Company, at the date of this report option costs of $557,393 (USD $520,000) have been paid and $465,593 (USD $500,000) are payable by 30 June 2012.

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Red Gum successfully established its activities at La Negra during the past quarter by firstly negotiating a two year land access agreement with the local community. The Company has also put together a field team on the ground based at the Combarbala field office, led by geologist and project manager, Miguel Huarachi. Field activities have focussed on renovation of the access roads, plus geological mapping and geochemical sampling. In addition, various logistical aspects have been successfully resolved, including water sources, core cutting and storage facilities, assay laboratories etc., prior to the initiation of drilling in the first quarter of 2012.

Subsequently, in January 2012, a drilling program to test the economic potential of the La Negra project has been initiated following the recent successful IPO.

The drill program at La Negra will consist of a 3,500 metre first phase program to evaluate the economic potential at depth of near-surface high grade Lead-Zinc-Silver (Copper-Gold) mineralisation exposed in old colonial era workings. The drill program is being carried out by the Chilean subsidiary of Energold Drilling Corp., a Canadian-listed international drilling company. Drilling is expected to take 3-4 months - first results are expected in February. Drilling will test targets within both base/precious metals-bearing tourmaline breccia structure and potential porphyry target suggested by the induced polarization survey.

The Company plans to drill eight deep (250-450 metres) diamond drill holes angled to the east and west and collared along the principal hydrothermal breccia. These holes are designed to test the strike extent and width of the mineralised zone down to an approximate vertical depth of 400 metres, at 100-150 metre intervals along the strike of the Principal breccia. In addition, the Company will drill at least one hole of minimum 450 metres depth to test for the possible existence of a porphyry system inferred from geophysical interpretation.

The La Negra Project:

• has an exploration target range of 10 Mt to 70 Mt4 (polymetallic Zinc, Lead, Copper, Silver and Gold ore);

• has extensive geochemistry and 3D induced polarisation geophysical survey;

• is a ready to drill project in a highly mineralised region, nearby to large multinationals such as Vale; and

• is easily accessible with a nearby mining town 10 km away.

La Negra is a zinc, silver, copper, gold and lead exploration property hosted in a tourmaline/hydro-thermal breccia system comprising a potentially bulk mineable unit. The system strikes north NE within a regional system which hosts several strongly mineralised polymetallic brecciated bodies along 40 Kms (and more) of strike. The La Negra tourmaline breccia is one – or two, of these in close tandem.

La Negra is situated 10 kms outside of the old mining town of Combarbala, some 160 kms southeast of La Serena, a large shipping town in the area. La Negra is easily accessible with the Pan American Highway nearby running to La Serena and access to the property is via a good set of roads with the last 6 km of road suitable for 4 x 4 vehicles. Due to the proximity of Combarbala, infrastructure in the area is good. The average elevation of La Negra is approximately 2,000 m above sea level and the semi-desert conditions makes for moderate weather year round.

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Surface exploration to date has shown a strongly leached and altered breccia that is between 250 m to 450 m in width over a strike length greater than 2,000 m with further visible zones of alteration. Exposed oxides of Zinc, Lead and copper oxides on the surface and underground are found in a tourmaline breccia, which is strongly limonitized. The black copper oxides and carbonates are visible with a variety of zinc and lead oxides and carbonates. Some sulphide minerals (sphalerite, covelite, chalcocite and minor chalcopyrite; galena, pyrite and others) are visibly present in the oxidised and leached zones which are estimated to be about 40 m to 80 m deep. Disseminated mineralisation (malachite, cuprite, bornite) is found in the altered porphyritic tonalite which also hosts a splay breccia system, to the east of the main exploration target. The somewhat surface defined oxide cap, supported by subsurface sulphides (inferred based on the IP survey) supports an exploration target at La Negra of 10Mt to 70Mt comprising up to 20% combined metal polymetallic mineralisation (Zinc, Lead, Copper and Silver).

Central Peru Polymetallic Belt

The Company through its wholly owned subsidiary, holds four exploration licences in the central Peruvian Polymetallic Belt:

• Cerro Huancash- 9km[2]

• Chongos A- 10km[2] • Chongos B- 9km[2] • Chongos C- 5km[2]

The Company has completed the purchase of the tenements from the vendor. The Company has paid the rentals due on the properties to keep them in good financial standing with the Peruvian Government. There is no minimum work program that the Company must undertake to retain a 100% interest in the properties.

The Peruvian polymetallic belt is one of Peru’s most important areas in terms of geological potential, due to the existence of numerous polymetallic skarn and replacement deposits. It has a proven track record in discovery of world class deposits, such as Antamina, Iscaycruz, San Gregorio and Toromocho/Morococha as well as numerous, highly profitable, small to medium sized deposits.

Cerro Huancash Project

The Cerro Huancash Project covers an area of 575.6 hectares and is a zinc-lead-silver exploration project. Cerro Huancash is located approximately 100km northeast of Lima and is accessible year round. While limited exploration has been conducted over Cerro Huancash, previous exploration in the area surrounding Cerro Huancash has identified a zone, of approximately 8 km length, reporting very strong zinc, copper, lead, silver and gold anomalies. The Cerro Huancash claim covers over 3 km of this prospective metalliferous belt.

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Chongos Project

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Chongos 2006A, Chongos 2006B and Chongos 2006C (together the Chongos Project), covering a total area of 2,400 hectares, is a zinc-lead-silver exploration project. Located 180 km southeast of Lima, the Chongos Project is easily accessible year round via the Central Highway. Previous exploration in the Chongos Project has indicated a strong presence of zinc and lead and some silver mineralisation in soil and rock sampling. No ground geophysics or drilling has been conducted in the Chongos Project since 2000. An estimated exploration target of 5 Mt – 15 Mt6 of potentially high grade metal ore is identified in Chongos 2006A.7.

CAPITAL

During the quarter:

• As part of the Initial Public offering (“IPO”), the Company issued 20,017,818 in securities in December 2011, raising $4,003,564 in funds;

• 750,000 shares were issued to Dr Paul Pearson in connection with the termination of the Management and Finder’s Fee Agreement with Ore-Forming Solutions S.A.;

• In November 2011 shareholders approved the issue of 3,000,000 options to Dr Paul Pearson under his managing director’s employment agreement; and

• In November 2011 shareholders approved the issue of 1,000,000 options (exercise price $0.25 and expire on 25 November 2014) to CCZ Corporate Finance Pty ltd pursuant to the Mandate Letter.

The Company had the following securities on issue at 31 December 2011:

Ordinary shares Unquoted stock options on issue	Number
	74,728,727
	4,000,000

On 13 January 2012, the Company was admitted to the Official List of ASX Pty Limited and Official Quotation commenced on 17 January 2012. The Company had 37,962,318 ordinary fully paid shares quoted on the ASX and 36,766,409 escrowed ordinary shares at the date of Listing.

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3,000,000 options were issued to Dr Paul Pearson under his managing director’s employment agreement as follows:

• First Tranche Options: 1,000,000 Options exercisable at the higher of IPO price plus 10 cents; and IPO price plus 15 cents, if on the date of exercise of the First Tranche Options, the VWAP for the previous 30 trading days is equal to or above the IPO price. The First Tranche Options vest 2 years after ASX listing date.

• Second Tranche Options: 1,000,000 Options exercisable at the higher of IPO price plus 15 cents; and IPO price plus 20 cents, if on the date of exercise of the Second Tranche Options, the VWAP for the previous 30 trading days is equal to or above the IPO price. The Second Tranche Options vest 3 years after ASX listing date.

• Third Tranche Options: 1,000,000 Options exercisable at the higher of IPO price plus 20 cents; and IPO price plus 40 cents, if on the date of exercise of the Third Tranche Options, the VWAP for the previous 30 trading days is equal to or above the IPO price. The Third Tranche Options vest 3 years after ASX listing date.

The Options expire unless exercise on the following dates:

• First Tranche Options 3 years from First Tranche Options vesting date;

• Second Tranche Options 3 years from Second Tranche Options vesting date;

• Third Tranche Options 3 years from Third Tranche Options vesting date;

• the Agreement is terminated or the Managing Director ceases to be an employee of the Company for any reason other than as a result of serious misconduct, the Options will expire 3 months from the date of termination; and

• if the Agreement is terminated, the Options will expire on the date of termination.

FINANCIAL

Reconciliation of expenditure

This is the second quarterly report for Red Gum Resources Limited for the year ending 30 June 2012.

Exploration and evaluation

The actual exploration and evaluation expenditure cash flows included in this report amounts to $214,810. We anticipate that this amount will increase over the next coming months.

Administration

The actual administration expenditure cash flows included in this report amounted to $137,932. We anticipate that this amount will increase after the Company lists on the ASX.

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Financing

The Company has successfully undertaken an IPO and a number of placement during this quarter, despite significant market uncertainty is testimonial to the advancements the Company has made in recent months. The highlights of the IPO and intended use of funds are as follows:

• As part of the Initial Public offering (“IPO”), the Company issued 20,017,818 in securities in December 2011, raising $4,003,564 in funds;

• $240,214 of the proceeds raised from the IPO will be paid to CCZ Corporate Finance Pty Ltd ((“CCZ”) to cover capital raising fees and management fees, pursuant to the Mandate Letter dated 8 July 2011;

• $1,464,445 in proceeds raised from the IPO and earlier Placements will be used to fund on-going exploration activity over the next two years;

• $555,555 in proceeds raised from the IPO and earlier Placements will be used to fund the La Negra Option Payment over the next two years; and

• $1,980,000 in proceeds raised from the IPO and earlier Placements will be used to fund on-going overheads and working capital over the next two years;

Cash at the end of the quarter

Cash at 31 December 2011 was $4,388,712.

Attached is the Appendix 5B Consolidated Statement of Cash Flows for the period from 1 October 2011 to 31 December 2011.

Paul Pearson (Managing Director) ................................................................ BSc (Hons), PhD, University of QLD

Fellow of AusIMM

The information prepared on operations in this report relating to mineral exploration activities has been prepared by Paul Pearson who has significant experience relevant to the style of mineralisation and type of deposit under consideration, and to the activity which he is undertaking, to qualify as a Competent Person as defined in the 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Paul Pearson consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

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Appendix 5B

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Mining exploration entity quarterly report

Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001, 01/06/10.

Name of entity

Name of entity	Name of entity
RED GUM RESOURCES LIMITED ABN ABN 66 119 641 986 Consolidated statement of cash flows Cash flows related to operating activities 1.1 Receipts from product sales and related debtors –sale of project 1.2 Payments for (a) exploration & evaluation (b) development (c) production (d) administration 1.3 Dividends received 1.4 Interest and other items of a similar nature received 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Other NetOperating Cash Flows	RED GUM RESOURCES LIMITED
			31 DECEMBER 2011
		Current quarter $A’000		Year to date (6 months) $A’000
		- (215) - - (138) - 8 - - -		- (305) - - (197) - 14 - - -
		(345)		(488)
Cash flows related to investing activities 1.8 Payment for purchases of: (a) prospects (b) equity investments (c) other fixed assets 1.9 Proceeds from sale of: (a) prospects (b) equity investments (c) other fixed assets 1.10 Loans to other entities 1.11 Loans repaid by other entities 1.12 Other (provide details if material) Net investing cash flows 1.13 Total operating and investing cash flows (carried forward)		- - - - - - - - -		- - (4) - - - - - -
		-		(4)
		(345)		(492)

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Appendix 5B		Year to date (6 months) $A’000 (492) 4,772 - - - - (282) 4,490 3,998 341 - 4,339
	Current quarter $A’000	Year to date (6 months) $A’000
1.13 Total operating and investing cash flows (brought forward)	(345)	(492)
Cash flows related to financing activities 1.14 Proceeds from issues of shares, options, etc. 1.15 Proceeds from sale of forfeited shares 1.16 Proceeds from borrowings 1.17 Repayment of borrowings 1.18 Dividends paid 1.19 Other (provide details if material) Share Issue Costs Net financing cash flows	4,004 - - - - (130)	4,772 - - - - (282)
	3,874	4,490
Net increase (decrease) in cash held 1.20 Cash at beginning of quarter/year to date 1.21 Exchange rate adjustments to item 1.20 1.22 Cash at end ofquarter	3,529 810 -	3,998 341 -
	4,339	4,339

Payments to directors of the entity and associates of the directors

Payments to related entities of the entity and associates of the related entities

1.23 1.24	Aggregate amount of payments to the parties included in item 1.2 Aggregate amount of loans to the parties included in item 1.10	Current quarter $A'000
		38
		-
1.25	Explanation necessaryforanunderstanding ofthe transactions
	Cash payment in respect of directors’ gross remuneration and fees.

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Appendix 5B

Non-cash financing and investing activities

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• 2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows

• 2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest

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Financing facilities available
Add notes as necessary for an understanding of the position.
Amount available Amount used
$A’000 $A’000
3.1 Loan facilities Nil Nil
3.2 Credit standby arrangements Nil Nil
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Estimated cash outflows for next quarter

Estimated cash outflows for next quarter
4.1 Exploration and evaluation 4.2 Development 4.3 Production 4.4 Administration	$A’000
	(600)
	-
	-
	(400)
Total	(1,000)

Administration cashout flows include IPO and share issue costs of $270,000.

Reconciliation of cash

Reconciliation of cash
Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows.	Current quarter $A’000	Previous quarter $A’000
5.1 Cash on hand and at bank 5.2 Deposits at call 5.3 Bank overdraft 5.4 Other (provide details)	4,339	810
	-	-
	-	-
	-	-
Total: cash at end of quarter(item 1.22)	4,339	810

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Appendix 5B

Changes in interests in mining tenements

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6.1	Interests in mining
	tenements
	relinquished, reduced
	or lapsed
6.2	Interests in mining
	tenements acquired
	or increased

Tenement reference	Nature of interest (note(2))	Interest at beginning of quarter	Interest at end of quarter

Issued and quoted securities at end of current quarter

Description includes rate of interest and any redemption or conversion rights together with prices and dates.

	Total number	Number quoted	Issue price per security (see note 3) (cents)	Amount paid up per security (see note 3) (cents)
7.1 Preference+securities (description) 7.2 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy- backs,redemptions	Nil	Nil
	Nil	Nil
7.3 +Ordinary securities 7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy- backs	74,728,727 Includes 36,766,409 escrowed shares	37,962,318
	20,017,818 750,000 Nil	20,017,818 - Nil	$0.20 Nil N/A	$0.20 Nil N/A
7.5 +Convertible debt securities(description)	Nil	Nil

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Appendix 5B			Number quoted Issue price per security (see note 3) (cents) Amount paid up per security (see note 3) (cents) Nil Nil Nil Nil Nll Total Exercise price $0.25 $0.30 or $0.35 $0.35 or $0.40 $0.40 or $0.60 Expiry date 25/11/2014 25/11/2016 25/11/2017 25/11/2018 Nil Nil Nil Nil Nil	Number quoted Issue price per security (see note 3) (cents) Amount paid up per security (see note 3) (cents) Nil Nil Nil Nil Nll Total Exercise price $0.25 $0.30 or $0.35 $0.35 or $0.40 $0.40 or $0.60 Expiry date 25/11/2014 25/11/2016 25/11/2017 25/11/2018 Nil Nil Nil Nil Nil	Number quoted Issue price per security (see note 3) (cents) Amount paid up per security (see note 3) (cents) Nil Nil Nil Nil Nll Total Exercise price $0.25 $0.30 or $0.35 $0.35 or $0.40 $0.40 or $0.60 Expiry date 25/11/2014 25/11/2016 25/11/2017 25/11/2018 Nil Nil Nil Nil Nil
	Total number		Number quoted	Issue price per security (see note 3) (cents)	Amount paid up per security (see note 3) (cents)
7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted	Nil		Nil
7.7 Options (description and conversion factor) 7.8 Issued during quarter 7.9 Exercised during quarter 7.10 Expired during quarter		1,000,000 1,000,000 1,000,000 1,000,000 4,000,000	Nil Nil Nil Nll Total	Exercise price $0.25 $0.30 or $0.35 $0.35 or $0.40 $0.40 or $0.60	Expiry date 25/11/2014 25/11/2016 25/11/2017 25/11/2018
		4,000,000	Nil
	Nil		Nil
	Nil		Nil
7.11 Debentures (totals only)	Nil		Nil
7.12 Unsecured notes (totals only)	Nil		Nil

Compliance statement

• 1 This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 4).

2 This statement does give a true and fair view of the matters disclosed.

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Sign here: ........................................................... Date: 31 January 2012
(Company secretary)
Print name: Mr Malcolm Lucas Smith
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Appendix 5B

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Notes

• 1 The quarterly report provides a basis for informing the market how the entity’s activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.

• 2 The “Nature of interest” (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2.

• 3 Issued and quoted securities The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities .

• 4 The definitions in, and provisions of, AASB 1022: Accounting for Extractive Industries and AASB 1026: Statement of Cash Flows apply to this report.

• 5 Accounting Standards ASX will accept, for example, the use of International Accounting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.

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