CHATREE. A GREENFIELDS DISCOVERY IN THAILAND.

M.G. Diemar

Kingsgate Consolidated NL.

Level 17, 33 Bligh Street Sydney. 2000 Australia

ABSTRACT

The discovery and definition of the Chatree gold deposits in Central Thailand resulted from the efforts of a small dedicated team over a long period of time backed by shareholders with unreasonable faith. Total official resources to date are 14.6 million tonnes at 2.7 g/t Au and 12 g/t Ag for 1.2 million ounces of gold, discovered and advanced through Definitive Feasibility for US$6 per ounce gold equivalent.

Exploration commenced in the year of King Rama IXs, 60^th birthday (1987) and continued throughout his 6^th (12 year) cycle.

Exploration costs were kept at an affordable level for a junior company by, keeping overheads low and by adopting a mixture of modern gold exploration concepts combined with traditional prospecting techniques, using only one part time expatriate to guide a team of Thai geologists and ensuring that drilling was carried out early, with genuine targets at a controllable rate.

At Chatree gold occurs in an adularia-sericite epithermal system within quartz-calcite-adularia veins, breccias and stockworks in a host intermediate volcanic arc sequence of Triassic age.

The project is anticipated to be in construction during 2000.

The art of being successful in Thailand is related as much to ones ability to think long term and to appreciate the country’s culture, history and confucian business systems as to ones ability to find gold.

INTRODUCTION

Chatree is located on the eastern edge of the Tertiary Chao Phraya Basin in gently undulating farmland 280 km north of Bangkok, on the border of Petchabun and Pichit Provinces as shown on Figure 1.

The project consists of five defined prospects (A,B,C,D and H) within an alteration area of 7.5km by 2.5km in gently undulating farmland.

The prospects occur within a north-south trending Upper Permian and Triassic volcanic arc sequence formed above subduction associated with the collision of the South-East Asian and Shan-Thai crustal blocks. The volcanic belt contains low sulphidation epithermal gold, copper/gold skarn and porphyry copper occurrences. Hard rock mining of malachite and magnetite from skarn has taken place in a number of locations in this belt over the last 4000 years dominantly during the bronze and iron ages. Minor alluvial gold has been produced at the village level in the northern half of the belt, mainly within Lao PDR.

Chatree is a greenfields gold discovery however we recently became aware of local folk-law describing minor colluvial and alluvial gold workings by slaves of the Japanese during World War 2 and by unknown parties during the reign of King Rama IV about 100 years ago in areas approximately 10 km south and 10 km east of Chatree.

HISTORY OF EXPLORATION

PERIOD OF UNBRIDLED ENTHUSIASM 1987-1988

Thailand was chosen as an exploration target in 1987 when foreigners were, for the first time, allowed to explore for gold. Good regional logistics in this very stable country with a mature mining law and reasonable gold and copper prospectivity were the determining factors in attracting the company.

Exploration commenced pre-crash in 1987 by Epoch Mining NL in joint venture with Kulim Limited and a private Australian partner. In late 1987 the writer rejuvenated the almost defunct joint venture and with the in-country help of Robin McQueen an Australian expatriate, set up a simple corporate structure, (Thai Goldfields Limited), an office and a team of one senior and five junior Thai geologists in Chiangmai.

Initial work included visits to every gold occurrence known to the Department of Mineral Resources (DMR) and every location having gold in its name, recorded the Thai 50,000 topographic sheets, of which there were large numbers. eg Gold Nugget Creek, Village of Gold Pits etc. This was a worthless exercise as most hardrock gold were minor skarn styles and the alluvial occurrences could not be related to hardrock sources. In addition it was concluded that alluvial gold should be the province of the local villagers and known hardrock occurrences generally had associated “difficulties”.

Based on metallogenic studies and regional conceptual targets a regional prospecting concept was introduced to the team by the writer. This was based on some very simple premises:

1. About 30% of Thailand required exploring.

2. No modern gold exploration had taken place and Thai geologists were only familiar with

quartz vein and skarn styles.

3. The joint venture had limited funds.

4. The ability to raise further funding was diminishing.

5. In-country gold assays were unreliable and >US$35 per sample.

6. There was no competition for ground so it was possible to explore without title.

7. The writer would run Epoch Mining NL and the joint venture from Australia and commute

to the field regularly to train Thai staff and to vet past work and plan forward programs.

8. All work would be carried out in a low key manner.

Classical style exploration of this large area was clearly not possible and multiple field teams were organised to carry out rapid reconnaissance prospecting over large areas of the main gold belts including slate belt vein styles in the west, disseminated gold arsenic antimony in Prae-Lampang, gold-barite associations on the peninsular, in Mae Hong Son and Loei and epithermal/skarn/porphyry Cu models in the far north, in Loei and in the Petchabun Belt.

The tools used were regional geology, definition of metallogenic belts, mineralisation models, rapid reconnaissance mapping, panning of soils above break-of-slope and alteration mapping.

Panning was considered a suitable technique for reconnaissance gold geochemistry in these South-East Asian terrains (latitude ±16 degrees north) where laterisation resulting from the dry monsoonal climate was predicted to have resulted in pannable sized gold grains being developed overlying even fine grained epithermal styles.

About 5 man years of field work was completed in this period which defined a very large number of targets.

Pannable gold was first noted at 1508 Prospect at Khao Mo (now A Prospect of Chatree) and from many other similar hills in the Chatree district by a Thai Goldfields Limited team, including Khun Chatree, in July and August 1988 during a prospecting sweep utilising soil panning above break of slope as the primary exploration tool. The potential at 1508 as a significant epithermal gold prospect was recognised by the writer in September 1988, during a periodic screening and prioritising of all new Thai Goldfields’ targets, with recognition of epithermal textures including crustiform veining and hydrothermal breccias.

The following policies were formulated at this time, which brought the main reconnaissance phase to a close.

1. Delete the following areas from the “potential targets” map. Mountainous (watershed, erosion) areas, some categories of forestry reserves, all national parks and many other reserve categories, heavily populated areas, areas within 10 km of known provincial strong men, military areas (past, present and future), large areas of farmland with ill-defined land title, later to be designated Sop Or Kor, areas with elephantitus, and a number of other uncategorised areas.

2. Concentrate on epithermal styles in the Loei and Petchabun belts as they have the best metallurgical, environmental and logistical factors associated with them.

3. Focus on a small number of the best targets and try to make a success of them.

PERIOD OF FOCUSSED ADVANCE 1989-1990

Prospect 1508 was chosen as the highest priority target and in the ensuing period received about 60% of the exploration effort.

It was a hill 110 metres high and 950 metres long trending at 005 degrees. Detailed grid based C horizon hand auger geochemistry, float sampling and later 800 metres of hand dug trenching were undertaken which outlined a strongly gold anomalous zone in soil and bedrock at greater than 0.5 ppm Au over a width of 150 metres and a length of 1300 metres trending at 350 degrees, the regional structural direction.

The trenching to bedrock confirmed the C horizon geochemistry with results as follows.

Trench	Result (ppm Au)	Trench	Result (ppm Au)
T1	Not sampled	T7	21.3m @ 2.0
T2	38.5m @ 1.7	T8	69.9m @ 2.9
T3	68.5m @ 1.4	T9	27.6m @ 1.0
T4	23.1m @ 1.4	T10	123.0m @ 1.4
T5	22.1m @ 1.6	T11	7.2m @ 1.6
T6	4.9m @ 2.1	T12	76.6m @ 0.6

Many of the trenches stopped in mineralisation.

Limited regional auger geochemistry on short east-west lines, north and south of 1508, was largely unsuccessful.

Regional prospecting and exploration in this and other districts, mainly on a series of epithermal targets was carried out with reasonable results.

The success at 1508 coincided with a difficult financial period for the joint venture.

The following conclusions were arrived at which brought this productive period to a close.

1. It would be necessary to obtain stronger title to the prospect before further serious work

could be justified.

2. It would be desirable to bring in a partner, preferably Thai, to support the project.

PERIOD OF PAIN AND SUFFERING 1990-1995

A limited field program was maintained initially, but a serious lack of available funds and to a lesser extent, a lack of confidence by some, in our ability to gain strong mineral title to the project, led to a suspension of field work and eventually to a disbanding of the Thai Goldfields technical team.

The administration side of the company continued to pursue title and maintain assets while partners were sought. The company’s name was changed to Issara Mining Limited to lower our profile.

Over a period of 18 months, major Australian, Canadian, French and Dutch groups come close to joint venturing the properties but failed to commit.

Epoch Mining NL withdrew from the exploration scene and in mid 1993, its Thai interests were sold to Kingsgate Consolidated NL. The writer went with the properties.

Efforts were directed to finding a Thai partner and in late 1993 a letter of intent was signed with Ban Pu Co., Ltd giving them a 51 % participating interest in the 1508 project and a joint venture company Akara Mining Limited was formed.

Special Prospecting Licences (SPLs) were applied for by the joint venture over 1508 and its potential extensions.

In 1994 the DMR formulated a policy to cancel all of the applications and to create reserves over the district for the purpose of tendering to exploration companies. This led to a 12 month period of uncertainty until the policy was dropped.

In June 1995, the SPLs were granted and exploration by the writer and Ban Pu staff commenced.

No flashes of wisdom appeared at this time; it was just a relief to be busy.

PERIOD OF SUCCESS 1995-1999

Subtitle – False dawn. July, 1995 to August 1996.

Exploration commenced in July, 1995, at the beginning of the heaviest wet season in Thailand for 10 years. The program included RAB bedrock drilling at 1508A Prospect (previously 1508 Prospect) and 1508B Prospect (discovered by the DMR in about 1992/3, 5 km south-east of 1508A Prospect). A number of encouraging intersections were recorded.

The centrepiece of the program was a 14 hole diamond drill program on 1508A Prospect with 4-5 holes on each of 3 lines, 200 metres apart, across the geochemical anomaly, which resulted in the following interesting, but to the joint venture, basically disappointing intersections.

DDH39 12.8 m @ 3.17 g/t Au & 21.5 g/t Ag

4.0 m @ 2.97 g/t Au & 28.4 g/t Ag

DDH36 58.0 m @ 1.39 g/t Au & 38.6 g/t Ag

21.0 m @ 2.37 g/t Au & 50.9 g/t Ag

DDH38 31.0 m @ 1.60 g/t Au & 14.2 g/t Ag

DDH32 50.8 m @ 2.01 g/t Au & 5.4 g/t Ag

1.2 m @ 51.00 g/t Au & 70.0 g/t Ag

Remember - hopes were high.

Due to the inconclusive nature of the results, there was an hiatus in the program while further budgets were argued and approved and fieldwork was only recommenced when the heat had built sufficiently, late in the dry season.

During this inactive period, Kingsgate’s equity in the project was increased from 31.6% to 90% as described below.

Following orientation sampling, a regional grid based auger laterite sampling program was completed over the pervasive silica alteration system. Laterite samples were taken to avoid surface contamination from gold bearing silicified volcanic material derived from local quarries and used on provincial and farm roads.

Strongly gold anomalous zones of a similar tenor and size to that existing at 1508A were defined in very gently sloping country between 1508A and 1508B Prospects as shown on Figure 2.

As the monsoon approached and the anomalous areas were being prepared by farmers for corn planting, a hurried bedrock RAB program was completed to determine if the laterite anomalism extended into the bedrock in a meaningful way.

Subtitle – Success at last. July, 1996 to present.

ASX release dated 28 June, 1996. “…11 of 12 RAB holes drilled, intersected greater than 1g/t Au over 2 metres. Three vertical holes, 200 metres apart north-south, drilled to 25 metres into bedrock were located on the southern section of the westernmost anomaly. The two most promising results were,

RAB93 10.0m @ 4.01 g/t Au

RAB95 10.0m @ 19.34 g/t Au and

9.0m @ 3.84 g/t Au.

This zone is now designated PROSPECT 1508C.

The other 9 vertical holes, drilled to 25 metres into bedrock were located on three east-west lines over a north-south strike length of 600 metres on the easternmost anomaly. The northern line returned the most promising results with three holes at 40 metre spacings assaying as follows,

RAB100 4.0m @ 1.42 g/t Au and

6.0m @ 5.32 g/t Au.

RAB101 25.0m @ 7.01 g/t Au

RAB102 2.0m @ 1.12 g/t Au and

17.0m @ 7.65 g/t Au

This zone is now designated PROSPECT 1508D.”

The receipt of these results for C and D Prospects, represent the defining moment of the Chatree Project.

Work completed to date on C and D Prospects and later H Prospect has included:

498 RC, DDH and combination RC/DDH holes for 38,759 metres of which 23, 317 metres were core.

Drill sites were generated by targetting the 0.8 ppm Au in laterite contour until the mineralisation was outlined then infilling to generally 25 x 20 m spacing for resource definition.

107 trenches for 5,708 metres were completed at the end for resource sampling purposes.

10 fully cored geotechnical holes were completed.

3 full size water production holes were completed.

35 sterilisation RC holes for 1,525 metres were completed.

The Busang fiasco and a long stockmarket and gold price decline resulted in increased project expenditures to ensure the highest quality of all project and testwork data.

Independent pre-feasibility, interim feasibility, definitive feasibility and Environmental Impact Assessment studies were completed.

This work has led to the definition of viable gold reserves located within a structurally controlled quartz, carbonate, adularia epithermal system, able to be mined by open cut methods with gold extraction in a standard CIL plant.

Mining Lease applications are proceeding well with the Environmental Impact Statement being the last document requiring approval. Construction is anticipated to be commenced in early to mid 2000.

RESOURCE GROWTH C, H and D Prospects.

The following formal resource estimates show the steady growth in resources in C, D and H prospects, and reflect the success of the field programs. The other prospects have not advanced to resource status yet due to lack of drill density.

Stage Resource Tonnes Grade Au g/t Oz Au Date

Prefeasibility Ind+Inf 4,200,000 3.1 422,000 Oct 1998

Initial with H Ind+Inf 6,500,000 3.3 700,000 Nov 1998

Interim m+Ind+Inf 12,700,000 2.5 1,004,000 May 1999

Feasibility m+Ind+Inf 14,500,000 2.6 1,200,000 Sep 1999

MINEABLE RESOURCE/RESERVE GROWTH C, H and D Prospects only.

The pre-feasibility and interim feasibility studies were based on mineable resources as the Whittle runs included Inferred Resources. The Definitive Feasibility was based on correctly derived reserves which resulted in slightly lower contained ounces because Inferred Resources were not included and a gold price of US$260 was used rather than US$275 as in the Interim-feasibility..

Stage Category Tonnes Grade Au g/t Oz Au Date

Prefeasibility Ind+Inf 3,700,000 3.1 373,000 Nov 1998

Interim Feas. m+Ind+Inf 9,600,000 2.7 825,000 Mar 1999

Feasibility Prov/Prob 8,200,000 3.1 807,000 Sep 1999

PROJECT PARAMETERS C, H and D Prospects only.

The basic parameters of the Definitive Feasibility are as follows.

Annual Production Schedule

	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Total or Average
Mill Feed Million tonnes/year	0.9	1.0	1.4	1.5	1.5	1.5	0.4	8.2
Mill grade Gold (g/t)	4.6	4.4	3.6	2.5	2.8	2.1	0.9	3.1
Mill grade Silver (g/t)	25	21	18	11	11	10	7	14
Gold equivalent recovered(oz x 1000)	138	140	152	107	122	91	10	759

Project Parameters - Definitive Feasibility Study. C, H and D Prospects only.

Total Operating Costs	US $85.0	million
Pre-production Capital Costs (new equipment)	US $29.8	million
Sustaining Capital	US $6.0	million
Gold price US320/oz
Total Revenue	US $242	million
Net Cashflow	US $115	million
Internal Rate of Return	95.6	%
NPV at 8% discount	US $84.8	million
Payback Period	12	months
Cash Costs Years 1, 2 and 3	US $91	Per oz Au equivalent
Cash Costs Total Project	US $117	Per oz Au equivalent
Production Cost Total Project	US $169	Per oz Au equivalent

The project will be one of the lowest cost producers in the world.

HISTORY of EQUITY

The self explanatory calendar of equity involvement of the company that the writer represented varied through time as follows.

Year	Equity %	Comments
1987	33.3	Commencement
Early 1988	66.7	Epoch purchased Kulim share
1989	64.4	Shares in Thai entity issued to Thai staff.
1993	64.4	Epoch share purchased by Kingsgate
1994	31.6	Ban Pu farms in for 51%
March 96	33.3	Kingsgate purchased Thai staff equity
March 96	49.0	Kingsgate purchased equity of Australian partner.
May 96	90.0	Kingsgate purchased back portion of Ban Pu equity

FINANCE

Perhaps the greatest compliment to those involved in the project came at the Interim Feasibility stage (before final resources and Definitive Feasibility and at a US$260 gold price) when a reputable Australian resource bank, offered 100% pure debt financing of the project

LESSONS LEARNT (which apply to the small company approach).

If you believe in a project fight for it. Always show your strong intent. Be single minded.

Patience is not a virtue it is a survival mechanism. Speed kills.

The shortest distance between two points is not a straight line.

Learn to recognise if you have a problem.

Learn to identify the problem.

Deal with the problem immediately.

Never take you eye off the ball or it will disappear.

Use trusted national staff in all dealings with nationals.

Budget size often has an inverse relationship to success as time kills the enthusiasm of backers.

Develop a wide network of national information contacts (spies).

Maintain a very low profile.

Equity is king.

Technical excellence is essential in prospecting and exploring. (something geological at last)

Above all things, remember you are a guest in the country.

THE FUTURE

The Chatree Gold Project has strong simple technical and financial fundamentals which when combined with the enormous potential for further discovery in the immediate surrounds will ensure a very long life for this new goldfield for which all of those people who have contributed to its discovery and definition can be justly proud.

ACKNOWLEDGEMENTS

I wish to acknowledge the contribution to the Chatree Gold Project of Surapol Udompornwirat, Suphanit Suphananthi, Pornthep Suwannachote, Abhisit Salam, Thibdee Sookhook, Kitipong Kongsawast, Mike Garman, Charnwit Premgamone, Aroonwadee Smarnmit, Chatree Chaicanapoonpol, Surapol Pikraungan, Sirinya Ponsonda, Chamrat Sangsrichan, Nopadon Chinabutr, those unnamable souls and those many people involved in the feasibility and other studies. .

Chatree Gold Deposit, Thailand.