Quasar Resources in joint venture with Alliance Resources has recently completed its stage 1 drilling programme at the high priority M2 iron oxide - associated copper-gold prospect within its Exploration Licence 2874, completing 9 drillholes targeting the Neoproterozoic Lower Callanna Beds, for a total of 3060 m of RC and diamond drilling (including 2408 m of core drilling), over the period November 2005 - May 2006. The aim of the programme was to investigate a probable high sulphide, mesothermal, magnetite - dominant skarn complex that lies adjacent to the historic Yudnamutana Mining Field. In earlier work on this tenement, geophysical modelling had identified two large, high amplitude magnetic anomalies located at about 200 m depth beneath quartzite ridges west of the abandoned Yudnamutana workings, which were interpreted to be dipping to the south-east, at an oblique orientation to the geological bedding, and thus could be due to plunging igneous pipes or diatremes : this view contrasted with historical attribution of the magnetic highs to shallow west - northwest dipping fold noses within the Wooltana Volcanics. Inspections of old mine workings and spoil heaps at historical drill collars in the area identified copper mineralization associated with actinolite, amphibole and magnetite. This coincidence of magnetite-copper supported the latest exploration concept. More recently, a HOISTEM survey, coupled with systematic soil sampling over the outcrop ridges, had defined conductive metallic anomalies directly associated with and adjacent to the magnetic highs. The soil sampling returned anomalous copper and gold (to 10 g/t Au) geochemistry immediately above the peak magnetic anomalies and associated with the EM conductors. A grant of PACE Initiative Year 2 funding was obtained from PIRSA to help offset part of the cost of the drilling programme. The only hole which was assigned any PACE funding is QM2004 (TD 582.5 m). The drilling carried out at M2 was deemed most successful, encountering zones of intense alteration and elevated Cu values within the basal Adelaidean metavolcanic/metasedimentary section. While only two drillhole samples have returned > 1% Cu, numerous zones contain copper concentrations greater than 1000 ppm. Both of the targeted magnetic anomalies are thought to represent zones of strong hydrothermal alteration, and are not just a simple thickening of the host volcanic package. Metallogenically-favourable alteration assemblages were intersected in all of the holes drilled, demonstrating analogies to Ernest Henry - style mineralising systems. Several stages of alteration are recognised, including: 1) magnetite-, biotite-, plagioclase- 2) K feldspar-, actinolite-, hematite-, magnetite-, carbonate-, and 3) late-stage calcite ? dolomite alteration. Brecciation is typically localised, ranging from unbrecciated volcanic sequences to crackle fracture veining and lesser clast and matrix - supported breccia. The downhole geochemistry thus far returned has been encouraging, indicating that there are zones of elevated copper anomalism associated with magnetite alteration. The best result seen to date is in hole QM2008, which returned a highest sulphide assay of 3.8% Cu from a zone having strong magnetite alteration. The predominant Cu-bearing mineral, as identified from drill core, is chalcopyrite. Assay results are pending for several holes. Petrology samples have been submitted from two holes, and results are awaited.