ADMIRAL BAY

Reported that exploration expenditure will be scaled back and because of the high capital cost of development of Admiral Bay, a joint venture partner will be sought to take the project forward to production.

Kagara's initial resource estimate for the Admiral Bay deposit in Western Australia was reported on Friday. An inferred resource of 72 million tonnes at a grade of 3.1% zinc, 2.9% lead, 18 grams per tonne silver and 11% barium reported at a nominal 2% zinc equivalent cutoff. The company stated it was part of a larger Inferred resource containing 97 million tonnes at a grade of 2.4% zinc (2.3 million tonnes of zinc), 2.9% lead (2.8 million tonnes of lead), 16 grams per tonne silver (48 million ounces of silver) and 16% barium also reported at a nominal 2% zinc equivalent cutoff. Scoping studies using the resource grades and contemplating a 10 million tonne per year underground operation have shown that the operation has the potential to produce 300,000 tonnes of zinc, 250,000 tonnes of lead and 4.5 million ounces of silver annually. The cost of production is expected to be in the lowest quartile of cash costs worldwide. The deposit remains open to the east and west along strike.

The drilling program at Admiral Bay saw the completion of wedge hole ABRD11D and the commencement of ABRD10. The drilling of wedge holes has been shown to be particularly challenging and it is unlikely that this method of exploration will be used for reserve delineation. The current program will see the completion of ABRD10 and it will add a further 400 metres to the strike of the deposit. The next hole will be ABRD12 which is planned to be core drilled from surface and have the dual purpose of generating important geotechnical information and extending the mineralisation to the east. Metallurgical test work is proceeding well and excellent liberation of lead and zinc at a very coarse grind has been achieved. Test work is now focussing on the viability of producing a barite concentrate as the ore at Admiral Bay averages 20% barite. An inferred resource for Admiral Bay is now expected in August. The delay in the resource calculation is due to work load of independent experts in the current resource market. Kagara has commenced discussions with shaft sinking contractors and independent engineering organisations to gauge the likely costs and timing of sinking an exploration shaft.