MineLife Weekly Resource Report

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ISSUE 39 14th September, 2011

I hope you enjoy this week’s report!

1. Scandinavian Resources (SCR) – Hold around $0.35

Advanced iron ore explorer with a large acreage position situated in the heart of Scandinavia’s iron

ore production district. A substantial maiden resource was recently released that beat expectations.

2. Solimar Energy (SGY) – Spec Buy around $0.062

Emerging oil company with a strategic exploration focus on the highly prolific San Joaquin Basin in

Southern California, USA. The company is aggressively evaluating a range of oil exploration targets.

3. Zambezi Resources (ZRL) – Hold around $0.015

Advanced Zambian copper explorer that recently received mining licence approval for its flagship

Kangaluwi project. The company has put a planned capital raising on hold, given market volatility.

4. Cortona Resources (CRC) – Spec Buy around $0.165

Emerging gold producer aiming to capitalise on strong gold prices by bringing its Dargues Reef

project in NSW, which boasts a JORC resource of more than 327,000oz, into production in H1 2013.

5. Empire Resources (ERL) – Spec Buy around $0.092

Well-credentialed explorer boasting the flagship Yuinmery project in WA, where a modest JORC

base metal resource exists. Exploration is underway to test new targets and expand this resource.

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Scandinavian Resources (SCR) – Hold around $0.35

Advanced iron ore explorer with a large acreage position situated within the heart of Scandinavia’s iron ore

production district. A substantial maiden resource estimate was recently released that beat expectations.

Corporate Details

Status: Advanced Explorer

Size: Small Cap

Commodity Exposure: Iron Ore

Share Price: $0.35

12-month Range: $0.135 - $0.65

Shares: 79m, Options: 60m

Top 20: N/A

Net Cash: $10m debt facility

Market Value: $28m

Rating (��out of 5)

Management Quality ��

Financial Security ��

Project Quality ��

Exploration / Resource Potential ��

Project Risk ��

There’s a lot of talk about in the market at present with respect to political risk as it pertains to resource

exploration and development. One part of the world that is deteriorating rapidly in terms of security of tenure

is South Africa, which has its fair share or problems with respect to the ANC Youth League and their calls

for nationalization. How this will all end no-one really knows - but in the interim it’s scaring away investors.

And it’s not only South Africa, but various other nations on the African continent as well as South America

and of late Mongolia. Rio Tinto has just this week effectively warned Mongolia’s politicians to not get greedy

with respect to the resource income that will soon be flowing through its coffers. Indeed the ‘fairer share’

argument amongst emerging mining nations is one that we’ve examined quite frequently.

It presents a real and growing hazard for resource companies all over the world and will inevitably raise the

overall cost of doing business. Indeed, it represents a serious supply-side risk that will in my view help

sustain the future price level of commodities by effectively factoring a greater risk premium into pricing.

All of this brings me to Scandinavian Resources. The company remains somewhat of an enigma for many

local investors, because of the uniqueness of its operations. Chances are that most investors are oblivious

to the strong mining traditions within Scandinavia. What is perceived as a relative unknown and a potential

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source of risk is actually very much the opposite. Scandinavia is a place that resource companies will

increasingly want to do business, due to the long-established legal, governmental and fiscal stability.

Scandinavia boasts a very proud and successful mining industry, with a strong contribution from iron ore.

And this is what first interested Scandinavian Resources.

The company is developing a pipeline of minerals exploration and mining operations within what is known

as the Scandinavian Shield in Sweden and Norway, comprising iron, gold, platinum group elements (PGEs)

and base metals. They comprise the Kiruna iron project (Kiruna district, Sweden), Lake Embrace copper-

lead-zinc-silver project (Nordland district, Norway) and the Swampy Mountain iron-copper-gold-PGE project

(Skellefte district, Sweden).

Most important of all, the company maintains a well-credentialed technical team, with Technical Director Mr

Olof Forslund (whom we met in Sydney last year) previously the Regional Manager of the Geological

Survey of Sweden’s Mineral Resources Information Office. The company’s recently appointed Deputy

General Manager, Christina Lundmark, is the Head of Division Mineral Information for the Geological

Survey of Sweden.

In terms of ground position, the company boasts one of the largest acreage holdings of mineral exploration

projects in Sweden and is one of the largest landholders in the world-class Kiruna IOCG district.

Without doubt the company’s flagship project is its Kiruna iron project, situated just 30km from the 2Bt

Kiruna iron mine in northern Sweden. Owned by LKAB, Kiruna is the world’s largest and most modern

underground iron mine. Its location and that of the various other iron ore projects in the district are clearly

outlined in the map above.

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For most Australian investors this is a real eye-opener, as Sweden’s iron ore industry has remained a pretty

well-kept secret for most of us.

The Kiruna Iron Project is centred on the town of Kiruna (population ~18,000) and Europe’s largest iron

mine, the 2Bt Kiruna mine owned by the Swedish Government-controlled company LKAB. The mine has

been producing continuously for a century and during that time a highly professional core base of skills and

services has been established in the town of Kiruna.

The company announced a major expansion of its iron ore footprint during June when it acquired a strategic

iron portfolio adjacent to its existing acreage. This comprises nine iron permits that include the advanced

Ekströmsberg iron project and Tjårrojåkka iron-copper project, located just 45km from Kiruna. These are

clearly identified on the map above.

The consideration for the purchase comprised the issue of 8.2 million shares in Scandinavian Resources

Ltd, a US$2 million cash payment and a 1% net smelter royalty on future production.

The Kiruna Project is extremely well situated with respect to infrastructure (rail, power and services), with

the Rakkurijoki project located just 100 metres from a major road, less than 1km from rail and 6km from

Kiruna. The project lies 180km from the Norwegian deep water port of Narvik (ice-free all year) and 340km

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from the Swedish port of Lulea. Shipments of premium-quality iron pellets that depart Narvik are generally

destined for the Middle East, while pellets departing Lulea find their way into Europe.

So Kiruna ticks all the boxes in terms of stability and infrastructure, two of the biggest factors influencing the

investment decisions of iron ore companies. But what about resource size and product quality?

Well, Kiruna fits the bill here too. When combined with the company’s existing JORC-compliant iron ore

resources and JORC exploration targets, the acquisition is consistent with the company’s long-term

strategy of developing a number of 50 – 100Mt iron deposits, then producing a premium-quality magnetite

concentrate. The recent acquisition adds a further +250Mt of iron ore to the company’s portfolio

The acquisition also provides the company with options in terms of planning future exploration, mining and

development. In terms of regional development, the company aims to progress its Rakkuri project (less than

7km from Kiruna) towards production in 2014/2015 and will continue drilling to increase its global resource

base with an aim of reaching 1Bt by 2012/2013.

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Phase 1 drilling is complete (10,000 metres) and Phase 2 drilling over the balance of 2011 (10,000 metres)

will result in an updated JORC resource during early 2012.

What’s important here is consistency. The Kiruna deposits share all the same characteristics of other

Swedish iron deposits that have been developed into iron mines in terms of size, grade and geometry.

Metallurgical test-work so far has been very encouraging and suggests a 70% iron concentrate is possible.

Importantly too, they lie just 50km from the largest iron mine in Europe and are therefore perfectly situated

with regard to essential bulk commodity infrastructure such as rail, power and other services. Scandinavian

has multiple export options comprising either Middle East-Asia or Europe.

During the June 2011 quarter the company spent $2.537 million on exploration and evaluation,

representing 97% of total expenditure for the period. For the September quarter the company plans to

spend $1.5 million on exploration and evaluation, representing 88% of total planned expenditure for the

period.

In terms of upcoming news, I’m looking forward to the release of further iron assays and an updated

resource statement before the end of 2011. The company offers abundant project development activity and

resource growth, combined with sound management and a fabulous ground position in the best iron ore

province in Scandinavia. And most importantly political risk is low. All for a market value of just $28m.

I maintain a Hold recommendation on Scandinavian Resources.

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Solimar Energy (SGY) – Speculative Buy around $0.062

Emerging oil company with a strategic exploration focus on the highly prolific San Joaquin Basin in

Southern California, USA. The company is aggressively evaluating a range of oil exploration targets.

Corporate Details


Size: Small Cap

Commodity Exposure: Oil & Gas

Share Price: $0.062

12-month Range: $0.039 - $0.125


Top 20: 44%

Net Cash: $4.3m

Market Value: $26m






Project Risk ��

Solimar Energy has embarked on an active work program in the USA aimed at converting the potential that

lies within its large San Joaquin Basin oil and gas acreage into commercial reserves. Most importantly the

company holds high equity stakes and is the operator of most of its California acreage. And a highly

prospective company-making well has just commenced drilling, so all eyes will be on the company over the

next month.

The company has nevertheless taken a few knocks over the past few weeks. First off, the oil price has

eased quite rapidly over recent months, taking a fair degree of near-term speculative interest in the oil

sector with it. For a lot of speculative investors, oil price weakness means they exit stocks and head for the

hills. I’ve no doubt that the oil price will recover solidly before the end of 2011, ensuring that right now

represents an attractive buying opportunity for prospective oil equities buyers.

The second difficulty for Solimar over the past month or so has been the demise of the company’s

previously planned North American equity raising. For various reasons (including poor market conditions)

Solimar had to abandon its original proposal and put together a revised funding package. This has now

been completed and whilst the terms are not as favourable as the original deal (again reflecting market

circumstances), the company is now fully-funded with a range of new North American shareholders.

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As I’ve previously discussed Solimar is well run. The company is headed by John Begg, one of the most

successful junior company operators in the Australian oil industry. Under his leadership the company has

greatly enhanced its opportunities for growth within its core area of focus in Southern California, USA.

Solimar is evaluating a combination of both conventional light and heavy oil targets, as well as

unconventional oil shale oil plays. It has built up a large (130,000 gross acres, 21,000 net acres) land

position within the San Joaquin Basin.

The Basin is one of the world’s richest oil provinces and is experiencing a resurgence in oil production

investment largely due to advances in oilfield technology. California alone currently produces more than

600,000 bopd (about two-thirds heavy oil), which is more than total Australian oil production of

approximately 550,000 bopd.

Seven of the top ten producing oilfields in the state of California are situated within the San Joaquin Basin.

Oil industry heavyweight Occidental Petroleum (OXY) has built up its land position to around 1.6 million

acres and is the dominant acreage-holder surrounding most of Solimar’s projects. And it is still busily

acquiring acreage.

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Oxy made the most significant onshore USA discovery in decades within the San Joaquin Basin during

2009, announcing a recoverable resource in conventional and unconventional reservoirs of 175 –

500MMBOE. OXY views California as the company’s biggest growth area worldwide.

In fact, some 45,000 bopd of the company’s 139,000 bopd from California in 2010 was oil shale production

and OXY predicts approximately 200,000 bopd for their California oil shale division by 2020. OXY currently

has around 30 drilling rigs running and plans 500 wells in California during 2011, with more than 100 wells

designed to prove up oil shale resources outside the company’s main Elk Hills production area.

Newer entrant Zodiac Exploration, like Solimar, secured a large land position ahead of the escalating

industry interest in the basin and announced in March 2011 a discovery in its 4-9 well on the Jaguar

Prospect with potential for 1,000 feet of oil pay in deep sandstone and fractured (Kreyenhagen) shale

reservoirs.

Solimar maintains a small interest in this project and will participate with Zodiac as it attempts to prove up a

resource that independent expert Sproule International estimated in June 2010 to have Prospective Initial In

Place (PIIP) oil resources of 4.1 billion barrels.

In all Solimar has nine individual projects (five of which it operates) within the San Joaquin Basin, all with

independent targets mature for drilling or production testing through re-entry of suspended wells that the

company owns. I’ll focus on what I consider to be two of the most interesting of these plays.

1. Kreyenhagen: 33.33 - 100% Working Interest and Operator (San Joaquin Basin)

Solimar’s largest project with both discovered oil and exploration potential is its Kreyenhagen Project,

where it maintains Working Interests ranging between 33.33 -100%, whilst also being the project operator.

The Kreyenhagen project hosts thick, fractured oil shales as well as a shallow oil accumulation (controlled

by over 30 existing wells) that contains as much as 300M barrels of oil-in-place. The project area is

characterised by prominent oil seeps associated with the outcrop of the sandstone and shale reservoirs.

The Kreyenhagen project is set in rolling hills on the east side of ranges uplifted along the San Andreas

Fault and falling further to the east into the valley floor of the San Joaquin Basin. The area is serviced by

good access roads, has power connected and there are four suspended wells drilled during 2007 that are

available for re-entry and testing of key targets. A central 800-acre area is a gazetted oil field, which

provides logistical and permitting advantages for the company’s planned appraisal and testing programs.

Based on per-well oil recoveries from oil shales elsewhere in the Basin, if Solimar is able to prove

commercial oil flow potential from the fractured shales in the Kreyenhagen Project, there is potential for

large oil resources to be recovered. Whilst the area has been penetrated by numerous historic wells (that

have individually produced at rates up to 10 bopd), Solimar will be the first company with the opportunity to

apply modern technologies to potentially convert these oil resources into producing reserves.

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The nearest adjacent oil fields have fractured oil shale production from the Kreyenhagen Shale in the giant

Kettleman North Dome (produced 400M barrels and 3 TCF gas) and both the younger Monterey Shale and

Kreyenhagen Shale in the Kettleman Middle Dome field.

Overall oil shale production has

historically been more advanced

in the Monterey Shale and its

equivalents in the south of the

Basin, where the Kreyenhagen

Shale is generally too deep to

be commercially attractive.

However to the northwest of the

Basin where Solimar has much

of its acreage, the Kreyenhagen

Shale is believed to have

sourced most of the plus 3

billion barrels of proved

conventional oil reserves in

fields in the area and is at targetable depths. Solimar is now one of the main acreage holders in this oil

prone fairway, surrounded mainly by super-major oil companies.

As operator of the Kreyenhagen

Project, Solimar is preparing a

plan to verify the oil productive

potential firstly of the shallow oil

sands commencing late in 2011

and then the oil shales. This

could include re-entering and

testing one of the suspended

wells and/or sidetracking and

coring right through the shale

sequence. The company will then

drill its own wells, followed by a

fracture-stimulated production

testing program.

Based on intersections in more than 20 old wells, the most recent drilled in 2007, there is a large oil

resource accumulated in shallow sandstones of the Temblor Formation within the Kreyenhagen Project

area. The oil has a relatively low gravity (13 to 18 degrees API) (i.e. a ‘heavy’ oil) and has been produced

from different wells at various times historically at rates between 1 to 10 bopd.

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The Sandstone reservoir outcrops in the acreage and the oil appears to be trapped by a low permeability or

impermeable tar mat at the near-surface interface. The four wells drilled during 2007 confirmed oil

intersections of 150 to 325 feet in steeply-dipping rocks (approximately 40 degrees) at the top of the

Temblor Sandstone, whilst an intraformational shale unit may form a base seal to this oil.

The wells were drilled down through the underlying Kreyenhagen Shale and in two cases deeper again into

the Avenal Sandstone from which light oil and gas was tested. No testing was done of either the Temblor oil

accumulation or the oil shales. A total oil column within the Temblor Sandstone of approximately 1200 feet

is indicated from the well control. Porosities measured from sidewall cores in the 20% to 30% range support

oil-in-place (OIP) estimates of up to 300M barrels within Solimar’s acreage.

The principal technical risks to the project relate to how highly saturated with oil the reservoir is and whether

it can be stimulated by injection of steam to produce at economic rates. The commercial environment for

exploiting the Temblor oil resource is highly favourable, particularly given the high oil price and differential

to the cost of gas which would be burned to generate the steam. Of note is that the giant Coalinga oil field,

about 12 miles away on-trend, has produced almost 900MMbbls from the same reservoir in a very similar

trap setting and with heavy oil production stimulated by steam.

There are many steam enhanced oil production projects within the San Joaquin Basin and the California

fiscal regime is competitive with other states with oil refineries that take and process heavier crudes. Heavy

California crude currently achieves a premium to WTI.

2. Paloma Deep: 25% Working Interest (San Joaquin Basin)

Solimar has just announced that the Nabors Rig #710 is on its way to site to drill the Paloma Deep-1 well,

with commencement of drilling likely next week. The Paloma West project is operated by Neon Energy and

covers some 1400 acres all within the structural closure of the Paloma oil and gas field which has produced

some 61M barrels of light oil and 432 billion cubic feet of gas (133 MMBOE) since discovery in the 1930’s.

The Paloma field is a large anticline structure some 12 miles long by 4 miles wide. The well location has

been chosen using 3D seismic which was acquired after the prior development of the field. The Paloma

Deep -1 well will be the first appraisal well drilled on the field using modern 3D seismic to help identify

favourable reservoir trends within the field closure.

There are seven individual, stacked reservoir targets in the well commencing at approximately 10,000 feet.

The well has a planned total depth of 15,500 feet and will take up to 2 months to drill. All the targeted

sandstone and shale reservoirs are part of the Miocene age Monterey Formation, the famous oil source and

reservoir formation in the southern San Joaquin Basin.

The estimated un-risked in-place hydrocarbon volumes are up to 300 million barrels OIP and based on an

11% recovery factor (equivalent to the historic recovery from the main producing reservoir of the Paloma

field) the targeted recoverable resource is 33 MMBOE.

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The well will drill though a series of shallower Pliocene (mostly-dry) gas reservoirs on the way down, which

are expected to be depleted by historic production. Some of these sand reservoirs are equivalent to the San

Joaquin Formation gas sands that Solimar is attempting to develop at its SELH gas project further to the

northwest in the basin. The shallow sands produced 23 BCF of gas at Paloma.

Solimar has increased its interest via farm-in with Neon to 25%. The dry-hole cost of the Paloma Deep -1 is

estimated at US$4.9 million. Solimar will be funding its share from cash reserves and the proceeds of the

current North American capital

raising.

Solimar believes that the 3D

seismic data (it has access to

which was shot, after the earlier

development of the field) and

modern drilling and completion

technologies provide an excellent

chance for a successful appraisal

of the sandstone reservoirs in the

western Paloma oil field.

Unlike most of the original field

wells that were drilled using

water-based muds that can react

with clays in the reservoir,

reducing permeability (or ability

to flow), the Paloma Deep - 1 will

be drilled with a synthetic oil-

based mud to reduce drilling time and minimise formation damage.

Assuming a 25% well stake, a conservative NPV of US$20/bbl of oil, A$/US$ exchange rate of 1.00

and 33M barrels of recoverable oil, this values the Paloma Deep-1 appraisal well at A$0.32/share to

Solimar on a fully-diluted basis.

Solimar is in the right exploration address at the right time. It offers investors unique small-company

exposure to substantial conventional and unconventional oil acreage, with big resource upside. The

company has also strengthened its board, with the appointment of US-based Dr Charle Gamba as a non-

executive director. He is a senior executive with almost 20 years experience in the USA and international

upstream oil and gas industry. Also keep an eye out for an imminent TSX listing.

With the imminent commencement of drilling of Paloma-1, I recommend Solimar Energy as a

Speculative Buy around $0.062. It is also an opportunity for existing SGY holders to top-up cheaply.

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Zambezi Resources (ZRL) – Hold around $0.015

Advanced Zambian copper explorer that recently received mining licence approval for its flagship

Kangaluwi project. The company has put a planned capital raising on hold, given market volatility.

Corporate Details


Size: Small Cap

Commodity Exposure: Copper

Share Price: $0.015

52-week Range: $0.013 - $0.048

Shares: 1.26b, Options: 160m

Top 20: 81%

Net Cash: $3.5m

Market Value: $20m






Project Risk ��

Zambezi Resources boasts a first-class array of copper and uranium projects in Zambia where exploration

results over the years have been extremely good. This is what makes the company attractive to us. And the

big news so far during 2011 was the confirmation of the granting by Zambian authorities of the much-

anticipated Mining Licence for its Kangaluwi Project.

In our most recent coverage we outlined the company’s planned $15 million capital that would enable it to

progress Kangaluwi towards development status. This comprised a secured $10 million convertible note

facility provided by LinQ Capital, along with a $5 million rights issue. Given market circumstances the

company has elected not to go ahead with the capital raising at this time.

Whilst somewhat disappointing in terms of the near-term impact on the company’s share price, Zambezi’s

actions are not surprising and are being reflected right across the junior end of the resource space.

Companies like Zambezi are unwilling to enter into highly dilutionary offerings at low share prices. The

company has sufficient funding in place to continue with its work programs.

Given market circumstances, it’s far more preferable if companies like Zambezi can defer equity raisings

until market sentiment improves to some degree and a better deal can be struck.

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Zambezi had established a strong exploration track record based on its successful identification of copper,

gold and uranium projects in southern Zambia, a nation well known for its mineral wealth, particularly

copper. The company’s projects have been identified as Iron Oxide Copper Gold (IOCG)-type deposits and

also shear-hosted gold deposits.

These projects are contained within eight prospecting licenses covering an area of more than 16,000 sq

km. Zambezi currently retains 100% ownership of its projects, although it has sought joint venture partners

to assist with funding on some of its projects.

The main focus for the company is its 100%-owned Kangaluwi copper project, which comprises the

Kangaluwi and Chisawa resources, plus the higher-grade Kalulu prospect, where shallow intersections

have been reported including 12 metres @ 0.96% Cu, 10 metres @ 0.94% Cu and 9m @ 1.27% Cu.

The mineral resource for Chisawa has been classified as an Inferred mineral resource and amounts to 14.5

Mt @ 0.90% Cu for 130,824 tonnes of contained Cu. This increases the contained copper metal for the

Kangaluwi Copper Project to 200,575 tonnes, excluding the higher-grade Kalulu prospect and with

additional assays outstanding.

Following the completion during 2010 of JORC-compliant resource estimates for the Kangaluwi and

Chisawa prospects, the company was able to commission CSA Global to complete a Conceptual Mining

Study that defined a potentially viable open-pit mining project on a mining resource of 23.4Mt at 0.85%

copper.

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CSA Global designed satellite open-pits to access the two ore-bodies, with a combined strip ratio of 3.5:1 at

a production rate of 1.5Mtpa over an initial 15-year mine life. Based only on the Kangaluwi and Chisawa

resources, the Kangaluwi copper project could produce around 56,400t of concentrate per year, containing

around 14,100t copper metal annually. In addition, there is a by-product gold credit of around 5,800 oz of

gold per year in concentrate.

Metallurgical test-work has determined that the Kangaluwi sulphide ore is amenable to conventional

flotation processing to produce a high quality copper concentrate grading about 30% Cu and a minor gold

credit, with copper recoveries of 94%.

The company is now undertaking a definitive, bankable feasibility study over the Kangaluwi Project. The

first phase of the BFS will be to review the previous technical data from scoping and pre-feasibility studies

and determine the most appropriate “base case” for the study. To do this, the total ore reserve must be fully

estimated and Zambezi is undertaking a Phase Two resource drilling program to convert the resources at

Kangaluwi and Chisawa prospects into the reserve category.

The company has recently appointed Mr Frank Vanspeybroeck as the new CEO of Zambezi and Mr

Marinko Vidovich as the Executive Project Manager. Both personnel are experienced in infrastructure,

logistics and project development and have already transitioned to take over the management of the project

development, logistics and drilling. The company has also appointed Dr Geoffrey Booth as its Consultant

Geologist. He has more than 30 years’ experience in base and precious metal exploration, resource

planning and development.

During the June quarter the company spent a total of $1.371 million on exploration and evaluation,

comprising 69% of total expenditure for the period. For the September quarter the company anticipates

exploration expenditure of $2.5 million, representing 83% of planned expenditure for the period.

The Kangaluwi Copper Project has the potential to be a company-maker and in an area entirely

unrelated to the renowned Zambian Copperbelt. Accordingly I maintain a Hold recommendation on

Zambezi Resources.

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Cortona Resources (CRC) – Spec Buy around $0.165

Emerging gold producer that aims to capitalise on strong gold prices by bringing its Dargues Reef project in

NSW, which boasts a JORC-compliant resource of more than 327,000 oz, into production during H1 2013.

Corporate Details

Status: Emerging Producer

Size: Small Cap

Commodity Exposure: Gold

Share Price: $0.165

12-month Range: $0.105 - $0.235


Top 20: 42%

Net Cash: $2.7m

Market Value: $32m






Project Risk ��

Cortona has just received the biggest boost possible, with the announcement by the NSW Planning

Assessment Commission of its much-awaited approval for the company’s planned Dargues Reef gold mine

development. This means construction can now officially commence during early 2012 and production can

commence during H1 2013. This is a major milestone and should set the company on a steady upward

share price trajectory now that project approval risks have been removed.

As I’ve said consistently, the prime attraction of Cortona Resources is its modest market value. At around

$30 million the company represents a particularly cheap emerging gold play. It’s been this way since our

initial coverage back in early January when we recommended Cortona as a Speculative Buy around $0.18.

Unfortunately, despite booming gold prices and its status as an emerging producer, Cortona’s share price

performance has been rather lackluster.

Over the past month, Cortona has announced major progress in terms of sourcing suitable ore treatment,

project funding, mining services, electrical power, as well as enhancements relating to metallurgy,

management and government approvals. Suffice to say that these advancements significantly enhance the

company’s credentials at a time when investors are clamoring for fresh gold sector production exposures.

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Cortona’s re-emerging

Dargues Reef gold mine is

located within the richest

historic goldfield in NSW.

Lying 60km east of

Canberra, Majors Creek

hosts NSW’s largest

alluvial goldfield, with

historic production of

approximately 1.25 million

ounces.

Cortona commenced

serious exploration work

at Dargue’s during 2007

and has since tested a

wide variety of targets.

Majors Creek represents an emerging Australian gold camp. Resource/reserve drilling during 2010 helped

confirm the robust nature of the Dargues Reef deposit, including the discovery of very high-grade parallel

structures at depth, which should ultimately add substantial ounces to the existing resource base.

Cortona recently announced entering into a Memorandum of Understanding (MOU) with DRA Pacific Pty

Ltd to construct the processing facility at Dargues Reef. DRA Pacific Pty Ltd is a subsidiary of DRA Group,

a leading global project management and plant construction group, which has completed more than 100

mining projects worldwide.

The lump-sum contract will cap the cost of the works, with a bonus scheme attaching to early delivery. The

agreement includes a throughput guarantee for the 330,000tpa plant. The Dargues Reef processing facility

comprises a crusher, ball mills, gravity circuits, and flotation cells for the production of a high-grade gold

concentrate and a gravity product.

The plant is designed for +95% recoveries, with about 50% of the gold reporting to the gravity circuit. The

concentrate will be trucked to the London Victoria gold mine near Parkes (~400km away), where Cortona

will further treat the concentrate to produce gold dore. First production is targeted for H1 2013.

The company now has all the key contractors in place for construction, mining and processing,

clearing the way for project development to proceed. Importantly, the combined total capital and

operating costs of these arrangements is within 10% of the DFS cost model that was completed

almost 12 months ago.

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Majors Creek currently boasts a gold resource comprising 1.615Mt @ 6.3g/t Au for 327,300 ounces, which

will grow substantially in the future with ongoing drilling work.

Current Dargues Reef Global Resource Base (using at 2g/t cut-off)

The resource base has been calculated to a depth of 450 metres, although the Dargues mineralisation

remains open at depth and has not yet been closed off by deep drilling and remains open in all directions.

There are also spectacular high-grade results from the adjoining Bonanza lode. This structure has returned

ultra high-grade intercepts including 5.7 metres @ 97.1g/t Au, as well as the identification of shallow lodes.

Significantly, none of this nearby lode mineralisation has been included in the existing resource estimate.

It’s more than likely that this new mineralization will comfortably push Dargues Reef towards the crucial

500,000 ounce resource milestone and beyond during the coming years.

Production forecasts based on completion of a full Feasibility Study last year demonstrate robust project

economics, as outlined in the table below. These numbers are calculated on average annual underground

gold production of 50,000oz over an initial six-year mine life, an assumed gold price of A$1,250/oz and

cash operating costs of A$628/oz. At a spot gold price of A$1,550/oz, Dargues Reef would deliver free cash

flows of ~A$112 million and a post-tax NPV (8% discount) in excess of A$75 million.

In terms of the likely development timeline, now that NSW Government project approvals have been

received, construction can commence during early 2012 and ore processing could commence before the

end of 2012.

19

Country Energy, the NSW State electricity infrastructure provider, is close to completing works required to

upgrade the line to 22kVA between Captains Flat and Majors Creek. Once connected, the upgrade will

deliver the mine with sufficient grid power to meet the project’s power requirements. The upgrade is

scheduled to be completed during Q3 2011, in time for Dargues Reef mine commissioning.

Cortona has also strengthened its board and management in preparation for mining. Mark Milazzo, a

mining engineer with considerable experience in underground and open-pit mining has joined the board in a

non-executive capacity, whilst Lorne Harvey has been appointed as the company’s Chief Financial Officer.

The current JORC Resource of 327,000 ounces of gold includes a mineral inventory of 257,462 ounces of

gold at an undiluted grade of 7.24g/t. The Resource does not include recent discoveries at Ruby Lode,

Chinamans, Dargues West or Carmine, all of which are within 200 metres of the planned development.

Phase 1 mining should generate strong cash flows and robust economic returns, providing an excellent

foundation for CRC to continue its aggressive near-mine and regional exploration programs. These

programs will target additional resource ounces within the broader Majors Creek Project area, which will

simultaneously extend mine life, boost annual gold production and enhance investor returns.

Recent discoveries close to the planned development highlight the potential for increased near-term

production and mine life, while the resource also remains open at depth. Exploration drilling has returned

promising results from near-mine locations.

The recently discovered Chinamans Lode is a great example, located within 40 metres of the planned

decline development. A recent intercept of 2 metres @ 15.3g/t gold lies beneath a previous intercept of 4

metres @ 28.0g/t gold, highlighting the potential for additional high-grade gold well within development

range of the current mine plan.

The positive results from Chinamans, combined with other recent discoveries at Ruby Lode, Dargues West,

Plums East, Carmine and Thompsons, provide strong indications that the base-case average 50,000

ounces p.a. production target can be significantly upgraded.

During the June 2011 Quarter the company spent a total of $1.385 million on exploration, evaluation and

development, representing 72% of total expenditure for the period. For the September quarter the company

anticipates exploration, evaluation and development spending of $0.575 million, which represents 54% of

estimated total expenditure for the coming quarter.

Now that the company has cleared the final regulatory hurdle I believe the path to production

should now be a relatively comfortable one. This should result in a re-rating for the company over

time. Accordingly, despite current sharemarket volatility I recommend Cortona Resources as a Spec

Buy around current levels of $0.165.

20

Empire Resources (ERL) – Spec Buy around $0.092

Well-credentialed explorer boasting the flagship Yuinmery project in WA, where a modest JORC base metal

resource is defined. Exploration is underway to test new targets and expand this initial resource base.

Corporate Details

Status: Grassroots Explorer

Size: Small Cap

Commodity Exposure: Metals

Share Price: $0.091

12-month Range: $0.039 - $0.16


Top 20: 41%

Net Cash: $1.7m

Market Value: $12m






Project Risk ��

Just this week Empire announced another very encouraging drilling result that unfortunately got lost

amongst the ongoing market malaise. The company reported a 7-metre wide, high-grade copper at its A

Zone prospect, situated within its wholly-owned Yuinmery Project in Western Australia. The drill hole was

abandoned when the drill-bit sheared off and could not be retrieved. The hole finished in low-grade

disseminated mineralisation from 210 to 230 metres.

The RC drill-hole, YRC11-26, returned 4 metres @ 4.68% copper and 0.5g/t gold from 194 metres depth,

with 7 metres @ 3.17% copper and 0.47 g/t gold from 192 metres down-hole (using a 0.5% copper cut).

The copper mineralisation is contained within the upper horizon and forms part of a 25 metre-wide zone of

disseminated sulphide mineralisation from 173 metres down-hole. True-width is estimated to be at least

80% of the drill intersection.

This latest intersection of higher-grade copper mineralisation is important because it continues to confirm

the potential of the A Zone prospect at Yuinmery. This is the deepest drill-hole yet drilled into the

mineralization, but still at less than 200 metres vertically below surface. The company plans to twin this hole

with a diamond drill hole during the December Quarter.

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The company’s flagship Yuinmery project lies 80km

southwest of Sandstone and is prospective for VMS

mineralisation, as well as PGM and nickel

mineralisation within ultramafic units.

The adjoining tenements are subject to a Joint Venture

between La Mancha (80% stake) and Giralia

Resources (20% stake). On exercising of the option

agreement, Empire will take over La Mancha’s full 80%

interest. Under terms of the agreement, Empire is

required to spend a minimum of $150k p.a. for three

years, followed by a $750k exercise price.

The inclusion of the surrounding tenure has increased

the total project area to 227 sq km within the Archaean

Youanmi Greenstone Belt.

An Indicated and Inferred resource totaling 1.07Mt @

1.82% Cu and 0.78g/t Au has already been defined at

the Just Desserts prospect, whilst there are also other

numerous nearby copper-gold targets that have significant potential to add to the existing resource.

VMS deposits often occur in clusters and the company has a clear strategy to drill a number of the

other nearby targets to test the potential for additional shallow, high-grade deposits.

22

Of particular interest is ‘A Zone’,

where prior drilling had intersected

significant mineralisation including

5 metres @ 2.6%Cu, 0.4g/t Au and

4 metres @ 8.1% Zn.

Empire has released further highly

encouraging copper intersections

of up to 19 metres in width from

drilling on its A Zone prospect. The

copper mineralization was

identified in a recently completed

RC drill hole (YRC11-16), which is

part of an ongoing drilling program

at the A Zone prospect.

The visible chalcopyrite mineralization was recorded from 158 to 180 metres down-hole. Using a 0.5%

copper cut, the intersection averages 5 metres @ 4.4% copper from 170 metres depth, within 19 metres @

1.85% copper from 160 metres down-hole.

This copper mineralization is contained within the lower horizon. True-width is estimated to be 80% of the

drill intersection. A full set of analytical results is expected to be released in the company’s September

Quarterly report.

Encouragingly, the A

Zone prospect lies

1.3km north of Empire’s

flagship Just Desserts

prospect.

This latest high-grade

intersection confirms the

potential of the A Zone

prospect at Yuinmery.

Mineralization is also

evident at depth and

along strike, with many

assays still pending. The combination of wide intersections at good grade supports the company’s belief

that the region has the potential to host a number of significant VMS mineralised zones.

Empire also has an 80% (and appreciating) stake in a nearby prospect called Constantine. Recent drilling

intersected large widths of low-grade PGM (Platinum Group Metal) mineralization, including 80 metres @

0.49 g/t Pt + Pd and 0.22% Ni.

23

The mineralisation is hosted within a mafic-ultramafic

intrusive complex and is associated with a prominent

magnetic horizon. This magnetic horizon can be traced

under cover for at least 13km along strike and has had

no previous drilling for PGMs.

Preliminary metallurgical studies have been

undertaken by Perth-based Independent Metallurgical

Operations Limited. This work has shown the average

Pt + Pd grades can be upgraded to six times the

original value through a flotation process. Recovery

rates on the samples indicate 65% for platinum and

52% for palladium. Metallurgical test-work is ongoing

as the company seeks to further improve recoveries.

The exploration potential around the Constantine

prospect should not be underestimated. 3.5km to the

south of Constantine on the same magnetic horizon,

Empire has identified further ironstones over a 500-

metre strike length, containing highly anomalous

platinum, palladium, nickel and copper values.

Empire recently announced they had been successful in applying for a grant from the Western Australian

Government’s Exploration Incentive Scheme, whereby the Government will match direct drill costs dollar-

for-dollar to a maximum of A$50,000. Empire has allocated these funds to co-fund a single deep diamond

hole at Constantine.

During the June 2011 quarter, Empire Resources spent a total of $0.357 million on exploration and

evaluation, representing 64% of total expenditure for the period. For the September quarter the company

anticipates exploration and evaluation spending of $0.4 million, which represents 62% of estimated total

expenditure for the current quarter.

The current program of drilling is continuing at A Zone as well as testing a number of other promising

geophysical targets in the project area. Meanwhile at Constantine, metallurgical test-work on drill samples

indicates a relatively simple beneficiation process can upgrade the PGMs and as such, Constantine could

evolve as a major project in its own right.

I’m encouraged by the level of activity within the Empire portfolio. If ongoing drilling of the high-

priority targets at Yuinmery is successful, it would significantly enhance the overall economic

robustness of the project and would trigger a significant re-rating in the company’s valuation.

Accordingly, I maintain our Speculative Buy recommendation on Empire Resources around $0.092.

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Disclaimer: Gavin Wendt, who is a Financial Services Representative of Summit Equities Ltd ACN 097 771 634, and is a director

of Mine Life Pty Ltd ACN 140 028 799, compiled this document. In preparing the general advice of this report, no account was taken

of the investment objectives, financial situation and particular needs of any particular person. Before making an investment decision

on the basis of the advice in this report, investors and prospective investors need to consider, with or without the assistance of a

securities adviser, whether the advice is appropriate in light of the particular investment needs, objectives and financial

circumstances of the investor or the prospective investor. Although the information contained in this publication has been obtained

from sources considered and believed to be both reliable and accurate, no responsibility is accepted for any opinion expressed or

for any error or omission in that information.

MineLife Portfolio: Please refer to our Portfolio page for a full listing of all our stocks held, including initial

entry prices and purchase dates.

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