Drummond Basin, Queensland

The Drummond Basin is perhaps Australia’s most prominent region for large, world class epithermal vein and stockwork style gold. These are best known for their potential to yield high ‘bonanza’ gold grades while other epithermal discoveries feature large scale but lower grade ores (Pajingo, situated in the northern Drummond Basin, is a world class, high grade gold/silver epithermal system, the deposit having produced nearly 2.5 million ounces of gold at an average grade of 11.4 g/t Au and metallurgical recoveries of 95%).

Of the properties being explored by Drummond Gold Limited, Mt Coolon, Glen Eva and Conway appear to have characteristics of the bonanza style, while Yandan and Eugenia appear to be bulk epithermal in style.

Drummond’s projects in the Drummond Basin can be grouped geographically as follows:

• Mt Coolon immediate vicinity
• Conway, 50km north
• Yandan, 45km west

Mt Coolon vicinity

Several projects, including those comprising the Company’s current gold Resources, surround Mt Coolon. Located 250 km west of Mackay, Mt Coolon is the only town in the northern Drummond Basin. It was built to service the first mining companies in the area in the 1920s and today is the location of Drummond’s exploration office.

Mt Coolon (Koala) Mine (Drummond 100%)

The historic Koala mine produced more than 226,000 oz of gold from 1914-1939 and in the 1990’s.

Koala currently has an estimated Measured, Indicated and Inferred Resource of 604,000 tonnes @ 3.5 g/t gold (67,200 oz gold).

The currently known resources at Mt Coolon (Koala) occur around the periphery of the underground workings, below the open pit and in the old tailings.

Two main lodes have been identified – Koala and Hectorina. There are both underground and open pit workings from previous mining at Koala. Current planning has two objectives. The first is to determine the open cut potential to the south of the existing pit in areas where previous drilling has targeted deep mineralisation associated with the old underground workings and also along the Hectorina trend which is a small, near surface deposit immediately south of the Koala mine. The second is to undertake deeper drilling to define potential higher grade mineralisation for underground mining.

Koala Regional Exploration Prospects

The Koala region outside the mine lease area includes a number of prospects. These prospects extend over 10 km and are located on a favourable north-west striking trend and parallelling structures, extending from Mt Coolon township in the north, through the Mt Coolon (Koala) mine to at least 5 km south east of the mine.

In 2009, geological consultants reviewed the Koala ore body and environs to improve understanding of the controls on mineralisation to target additional drilling. The consultants were able to draw on not only drill hole data and surface outcrop observations, but also the latest geophysical processing techniques and ground magnetic and IP/Resistivity geophysical data recently acquired by Drummond and not available for previous reviews of the Koala area.

As a result, the consultants defined several highly prospective targets to the north and northeast of the Koala orebody that have not been previously tested by drilling. These, together with targets at Golden Bar to the south, indicate the potential for a large epithermal gold system that has received very little exploration attention in the past.

The highest priority is the Tower Prospect, located immediately to the northeast of the Koala ore body and considered to be a likely extension of the same mineralisation system. Drilling at the Tower Prospect is planned for 2010.

Golden Bar (Drummond 100%)

The Golden Bar was mined from 1922 to 1924. The mineralised reef is parallel to and 600 m west of the Mt Coolon (Koala) mine. It is 140 m long, 0.3 to 1.5 m wide and cropped out as a series of discontinuous, gossanous quartz blows in kaolinised Mt Coolon andesite with underground workings extending to 73.5m depth. Production was minor. Drilling near the old workings by RGC returned significant gold results which have not been followed up, including 1.5 m @ 23.4 g/t Au (GB003 18 m – 19.5 m) and 0.4m @ 7.76 g/t Au (GB004 38.4 m – 38.8 m).

Glen Eva Mine (Drummond 100%)

The Glen Eva open cut mine produced more than 24,000 ounces of gold in the 1990’s.

Glen Eva currently has an estimated Indicated and Inferred Resource of 154,000 tonnes @ 7.5 g/t gold (37,200 oz gold).

The pit at Glen Eva was closed prematurely after a high wall failure.

Previous exploration drilling has been relatively shallow, undertaken to define the open cut potential of the Glen Eva deposit. Deeper drilling, where undertaken, has indicated a southeast plunge to mineralisation with several significant intersections returned. Current exploration planning is directed towards determining potential for expanding the current open cut, and to test for deeper high grade mineralisation for potential underground mining.

Modelling of the Glen Eva resource was completed in 2009 to enable optimisation studies to determine the potential for a cut back of the existing pit and/or underground mining. The Glen Eva mineralisation has not been drill tested at depth to target potential “Bonanza-style” ore shoots; a drilling program is planned.

Glen Eva Regional Exploration Prospects

Drummond has identified a 15 km long mineralised structural zone that runs north-west from Great Eastern through Glen Eva and on to the Canadian and Last Stand prospects.

Eugenia Prospect (Drummond 100%)

Eugenia represents the largest component of Drummond’s currently known Resource in the Mt Coolon vicinity.

Eugenia currently has an estimated Inferred Resource of 4,416,000 tonnes @ 1.3 g/t gold (178,200 oz gold).

Gold mineralisation occurs as quartz-carbonate veinlets identified in gently dipping zones over an area of about 700 m north-south and east-west. Prior to Drummond’s exploration, the prospect had only been sparsely tested below 100 m depth.

Drilling by Drummond in the central and southern portions of the deposit has confirmed the mineralised zones’ continuity. The deepest drill hole intersected high grades (EURC018 from 162 to 164 m, 2 m @ 19.4 g/t Au) at a vertical depth of 140 m below surface, which may indicate another mineralised horizon or a steeper feeder zone.

The high silver values, the predominance of carbonate veining and alteration and the lack of clear, strongly developed structure suggest that the known Eugenia mineralisation lies above the gold window favoured for high-grade vein style deposits. The large surface dimensions of the known system (over 700m by 700m) give added encouragement to test for a feeder zone at depth.

Drilling in 2008 aimed at extending the known Resource focussed on possible high grade feeder zones. The results confirm broad zones of low grade gold interspersed with high grade hits. One intercept recorded 2m @ 13.9 g/t gold and 26.3 g/t silver from 175 to 177 min EUDD041.

In 2009, independent geological and engineering consultants reviewed the Eugenia Resource (see revised estimate above) and conducted mining studies.

The work in 2009 yielded lower grades. It is apparent that Eugenia requires further exploration, the project needing an increase in the Resource and higher gold prices to become economic. The scope for significantly expanding the Resource appears limited at shallower depths. Additional infill drilling will improve the confidence of the block grades but is unlikely to change the overall grade unless there is a major change in geological interpretation for the geometry of the mineralisation. Any additions to the Resource are likely to occur at depth (around 150m below surface) or associated with small zones of mineralisation adjacent to the main ore body to the east.

TPM Skarn Prospect (Drummond 100%)

Copper-gold mineralisation has been confirmed by Drummond drilling at the TPM prospect. Results included 29m (from 2.2m) @0.9% copper, 0.09 g/t gold and 11.25 ppm silver; 28m (from 21m) @ 1.15% copper, 0.49 g/t gold and 0.98 ppm silver including 1m (from 41m) @ 5.14% copper, 0.59 g/t gold and 3.9 pm silver; and 13m (from 10m) @ 1.16% copper, 0.04 g/t gold and 2.14 ppm silver.

Mineralisation comprises massive magnetite, which is associated with iron-stained jasperoid. Widespread copper and gold mineralisation (up to 3.03% Cu in DDH4A from 57”6” to 75”6”) has been intersected in drill holes by previous operators.

Badlands Prospect (Drummond 100%)

Exploration by Drummond produced wide drill intercepts of gold mineralisation at Badlands. Gold-silver-lead-zinc mineralisation was identified at the prospect where results included 1m (from 107m) @12.5 g/t gold, 31 g/t silver, 1.27% lead and 5.27% zinc; 5m (from 103m) @ 1.7 g/t gold, 4 g/t silver, 0.01% lead, 0.25% zinc; and 4m (from 51m) @ 0.3 g/t gold, 17 g/t silver, 0.03% lead and 3.36% zinc.

The Company was successful in obtaining a Queensland Government grant under the Smart Mining Collaborative Drilling Initiative. The Badlands prospect has appeal due to its potential for open pit mining, excellent road access and proximity to the possible location of the proposed Central Treatment Plant.

Mt Manaman Prospects (Drummond 100%)

The project area, 5 km south of Mt Coolon, is dominated by the Manaman granodiorite, an elongated northwest trending intrusive body 5 km wide and at least 6 km long.

The Manaman porphyries lie in a zone approximately 5 km east to west and 2 km north to south, extending mainly west of the Badlands prospect. The Directors believe the area is of significant interest since it lies over the Anakie-Drummond Basin broad contact zone. Exploration is regarded as high risk but with potentially high rewards. The Company was successful in obtaining two grants for exploration at Mt Manaman from the Queensland Government grant under the Smart Mining Collaborative Drilling Initiative.

Conway (Drummond 100%)

The Conway exploration project area covers three epithermal systems, the Conway, North Conway and Bimurra cells which are about 10km from each other. There are a number of prospects associated with these cells. The Conway epithermal system appears to have the characteristics of a bonanza style deposit.

The Conway area contains some of the largest exposed silica alteration systems in the Drummond Basin. The area has been extensively explored but only to shallow depths.

Yandan (Drummond earning up to 51%)

In May 2009, Drummond reached agreement with Straits Resources Limited, owner of the Yandan gold project, to earn a majority interest in the Yandan project, allowing Drummond to significantly increase its gold Resources. Under the farm-in JV, Drummond can earn a 51% interest in the Yandan project by spending $3 million over three years.

Yandan is 45 km west of Mt Coolon. Mining at the Yandan open pit during the 1990’s produced 365,000 ounces of gold from a total of 9.4 million tonnes at an average mined grade of 1.2 g/t gold.

In recent years, Straits Resources discovered considerable mineralisation beneath the East Hill Pit at Yandan. High grade zones intersected by drilling include 4.4m @ 22.8 g/t gold, 5.5m @ 11.6 g/t gold, 5.95m @ 55.72 g/t gold and 2.3m @ 17.1 g/t gold. An Inferred Resource of 4.1 million tonnes @ 2.4 g/t gold (308,000 oz gold) has been estimated for the East Hill mineralisation.

During 2009, Drummond implemented an exploration drilling program at East Hill, targeting the discovery of the high grade feeder system beneath the East Hill open pit. Initial drilling intersected significant gold mineralisation.

Assay results confirmed continuity of the east-west trend of lower grade mineralisation with intersections including 13m @ 5.91 g/t gold, 12.3m @ 2.25 g/t gold, 4m @ 3.94 g/t gold and 4m @ 12.82 g/t gold.

However, it was recognised that high grade intersections (2m @15.54 g/t gold, 0.9m @ 99.4 g/t gold, 3m @ 20.92 g/t, 1.3m @ 10.6 g/t gold and 1m @ 13.65 g/t gold) corresponded to quartz veins that were generally oblique to the core axis, indicating a more north-south structural control on the high grade veining. No drilling has been undertaken to adequately investigate the high grade trend.

Drilling has been designed to intersect the high grade zones at a more favourable orientation to determine three dimensional geometry of mineralisation, true width of the high grade zone and density of the high grade veining. There is potential to discover significant new resources if this drilling is successful, with the high grade target zone extending from East Hill to South Pit, a distance of more than 400m. Further drilling is planned in 2010.

Yandan has the benefit of considerable existing infrastructure – power, water, road ways, existing mining leases, tailings dams and exploration camp – and is linked by an all weather haul road to Mt Coolon, a significant advantage should Drummond establish a Central Treatment Plant there.

News