Exploration Strategy

Palito and near mine mineralised zones are characterised by quartz-sulphide and massive sulphide veins. The vast bulk of the ore mined from the underground Palito mine was hosted in quartz-sulphide veins, with higher grade bonanza shoots existing in small diameter, plunge continuous, massive sulphide pods or shoots.

The nature of the quartz and sulphide content of the ore zones lends itself to detection via electrical geophysical methods, due to the conductivity in the sulphides and the resistivity provided by the quartz. Historically ground electrical geophysical exploration methods such as electromagnetics (“EM”) and Induced Polarisation (“IP”) have yielded good results in the Palito area reinforcing their importance as primary exploration tools for identifying these types of mineralisation.

In 2006, Serabi conducted a trial of ground EM surveying at Palito. The positive results led to Serabi commissioning the helicopter-borne VTEM geophysical survey over the Palito Deposit and surrounding 6,000 hectare area. The benefit of the EM technique is that it can highlight the massive sulphide component of the Palito style of mineralization, and therefore immediately provides a focal point for exploration within the dense vegetation surrounding Palito.

The 2008 airborne VTEM survey identified 47 discrete anomalies and 19 anomalous complex conductive zones. These geophysical targets were then integrated with the other geological datasets including soil geochemistry, drilling data, lineament analysis and geology for the project. As a result 18 “target areas” were defined for further follow-up exploration. These 18 targets provided the focal point for discovering potential mineralised zones. Fifteen of the targets were within three kilometres of the mine and of these fifteen, seven situated within the Company’s existing mine licence. The remaining targets were all located within the Company’s surrounding exploration licences.

Bearing in mind that the bulk of Palito ore was sourced from quartz-sulphide vein material and not massive sulphide, the VTEM survey represented the first step in the identification of additional resources whilst the application of IP helps delineate the quartz-sulphide veins. The combination of both EM and IP and the subsequent 3D modelling provides a direct focus for drilling activities and the subsequent potential expansion of resources at the JDO Project.

A 12,000 metre discovery diamond drill programme was undertaken during 2011 on nine of the identified 18 targets with three discoveries being made. Further evaluation and drilling programmes are planned on these three discoveries including in-fill and step-out drilling. The intention on completion of such programmes would be have sufficient information to calculate a resource for each of these discoveries which if commercial could be mined and processed using the existing plant and infrastructure of the Palito operations.

Serabi undertook a further airborne VTEM survey in January 2011, covering two areas totalling 8,000 hectares which defined further anomalies including some clustered results indicative of the presence of some very prospective structural corridors. Some of these will be the subject of a further IP programme which the company hopes will ultimately lead to the identification of further targets ready for discovery drilling.