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  • MALACHITE RESOURCES LIMITED

    QUARTERLY REPORT DECEMBER 2009

    SUMMARY During the Quarter Malachite announced the establishment of a strategic alliance with NANYANG MINING RESOURCES INVESTMENT PTY LIMITED, beginning with a significant equity investment in the Company, making Nanyang Malachite’s largest shareholder, with 8.6% of issued shares. The alliance was established with the expectation that it would lead on to further new business through joint ven- tures, both on existing Malachite projects and on possible new acquisitions. The first joint venture for the Nanyang alliance is intended to be at the CONRAD SILVER PROJECT and negotiation of a joint venture agreement to this end was in progress at Quarter end.

    A diamond drilling program at the TOOLOOM GOLD PROJECT commenced during the Quarter, aimed at a preliminary test of three prospects, namely Pine Gully, Back Creek and Joes Gully. Assay results have been received for holes drilled at the first two of these prospects, with results that are encour- aging geologically but disappointing in terms of gold grades encountered. The drilling program was interrupted in December when a major bushfire swept through the area, forcing evacuation of per- sonnel for safety reasons. The drilling program resumed in early January.

    At the ELSMORE TIN PROJECT work continued to focus on bulk sampling of alluvial deposits for evaluation of recoverable tin content using the Company’s own cone concentrator. The program was suspended in December due to a shortage of process water following a prolonged dry spell. Rain in recent weeks has replenished the water supply on the Company’s property near Conrad (i.e. Jadree), which is where the cone concentrator is located and has been put to work. Processing of the remaining samples will resume by the end of January.

    A preliminary reverse circulation percussion drilling program took place in October at the DELUNGRA TIN PROJECT. The drilling targeted near surface tin in hard rock, beneath a strong tin-in-soil anomaly at the Standon prospect. Some significant tin values were intersected locally, but the large, bulk tonnage model was not supported by the results achieved.

    The Company made placements during the Quarter which raised $1,582,000 in new working capital. Exploration expenditure during the December Quarter was approximately $622,000.

    ABN 86 075 613 268

  • Malachite project locatioN Map

    www.malachite.com.au Page 2

    Quarterly Report DECEMBER 2009

  • Quarterly Report DECEMBER 2009

    coNrad

    www.malachite.com.au Page 3

    The principal activity relating to CONRAD during the December Quarter has been the negotiation and documenting of a joint venture with NANYANG MINING RESOURCES INVESTMENT PTY LIMITED. At the end of December that process was still underway.

    Establishing a joint venture with Nanyang at Conrad has necessarily been a slow process, as there are significant cultural, language and business invest- ment barriers that need to be overcome. While these delays are undoubtedly frustrating to Malachite and its shareholders, it is obviously very important that a relationship that is intended to have a long term future be set up on a very sound basis. Both sides need to have a clear understanding of their rights and obligations under the proposed structure and it is essential that Nanyang, as a new player in the Austra- lian mining industry, fully comprehends the business it is getting into. It should be noted, for example, that an unincorporated joint venture structure, which is the usual form of joint venture in the Australian mining sector, is a new business concept to many Chinese investors. Considerable effort has gone into explaining how such a structure works, how it differs

    from a more conventional, incorporated structure and the reasons for entering into this form of agreement in the first place.

    Malachite has presented Nanyang with an unincorpo- rated joint venture document which was drafted along the lines of the AMPLA1 model. The core commercial clauses of this document have been translated into Chinese (by Nanyang’s Sydney representative) and forwarded to the Nanyang principals. Comments from Nanyang’s Chinese solicitors have now been received and are being considered by Malachite and its legal advisers.

    Field work at Conrad during the Nanyang negotiation period has been limited largely to environmental maintenance.

    toolooM

    After effectively being on care and maintenance for the past year, the TOOLOOM GOLD PROJECT was reactivated in the December Quarter. The prime objective of the new program at Tooloom was to drill at least two holes into each of three prospects where encouraging surface gold values have been encountered previously by the Company (Fig. 1). Details of the drill holes at Tooloom are summarised in Table 1 below.

    The first prospect to be tested was PINE GULLY (Fig. 2), where old workings are scattered along a well defined, northwest-oriented fault structure that is exposed for about 1km, before disappearing under younger rock cover at both ends. Strong shearing, brecciation and gold-rich quartz veins have been mapped and sampled at surface, especially inside one of the old adits. The two drill holes at Pine Gully were designed to test this structure at depth.

    Both holes clearly intersected the fault structure where it was expected and the second hole in particular (beneath No. 2 adit) encountered a broad zone of alteration, brecciation and veining, over 30m wide and centred on the actual fault itself, which is expressed by very strong brecciation over an interval of about 1m, and reminiscent of the features seen inside No. 2 adit . Some sulphide mineralisation is associated with the alteration, brecciation and veining, with arsenic

    NSW

    N EW

    E N

    GL

    AN D

    H W

    Y

    PA CI

    FI C

    H W

    Y

    SYDNEY

    INVERELL

    NEWCASTLE

    COFFS HARBOUR

    LISMORE

    TOOLOOM GOLD PROJECT

    1 AMPLA is the Australian Mining and Petroleum Law Association

    SYDNEY

    INVERELL

    NEWCASTLE

    COFFS HARBOUR

    CONRAD SILVER PROJECT

  • www.malachite.com.au Page 4

    Quarterly Report DECEMBER 2009

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