VASSE COAL PROJECT

Background

The Vasse project comprises a set of 7 mining and 2 exploration leases covering the majority of the Vasse Shelf coalfields, which is situated some 260 km to the south of Perth, Western Australia and is the last remaining high energy black coal resource in this region. The deposits are strategically significant as they are ideally located to take advantage of proximity to the booming coal markets of south-east Asia and in particular, the Indian subcontinent. This project comprises a JORC compliant underground resource of 116.8 million tones of Permian coal, with further exploration potential.

The project is situated in within the Margaret River district, which is well serviced by a number of rural villages, power and water supply and a regional road network.

Annual production after initial ramp up is anticipated as around 1.6 Mtpa ROM. Some 80% of the ROM coal will be washed on site with the remainder bypassed, resulting in just under 1.5 Mtpa product.

Evaluation of coal processing indicates that a superior Australian low rank thermal coal product with ash specification of 11-12% may be readily produced, with an assumption of 20% of raw production bypassing the plant.

Royalties & Uplift Payments

During 2006 the Company worked with an international resource development group, Triangle Resources Fund Australia (“Triangle”) and Core Resources Pty Limited (“Core”) to effect the sale of the Vasse Coal Project.

Triangle and Core exercised an option to acquire the announced the sale of its Western Australia coal leases to an international resources development group Triangle Resources Fund Australia and Brisbane based development company Core Resources Pty Limited. Management completed the sale in late 2006 and in terms of the sale agreement the company after an initial cash payment that was received on signing of the agreement will continue to receive ongoing royalties and other upside benefits based on the performance of the project