Three small adjacent licence sub-blocks, that together cover ~1.5 square km of inferred prospective brownfields ground immediately surrounding Mining Lease ML 5776 held over the former Kanmantoo open pit copper mine (which peripheral ground is herein called the Kanmantoo Mine Corridor), are continuing to be explored by Hillgrove Resources for extensions to the known vein and replacement style copper-gold lodes. Previously the subject ground had been declared exempt from mining due to environment protection concerns, but recently Hillgrove successfully petitioned the State Government for this area to be returned to active EL status, albeit with clearly defined environmental protocols in regards to the native grasslands and woodlands present. The last mineral resource calculation made by Hillgrove for the Kanmantoo deposit had suggested that a remnant resource of significant size (estimated >18Mt @ 1.1% Cu + 0.2-0.4 g/t Au) may be present. Part of this buried resource extends into EL 3298, as evidenced by numerous old workings and shows of mineralisation seen from past drilling, making it is increasingly clear that this tenement has the potential to host several satellite deposits that may even connect to the existing open pit. Mineralisation in the vicinity of the Kanmantoo mine occurs as discordant Cu-Au stockworks within a host rock consisting of quartz–biotite–andalusite±garnet±chlorite schist. The orebodies commonly exhibit pipe-like dimensions, with podiform lenses and veinlets of chalcopyrite, pyrrhotite, pyrite, magnetite, chalcocite and covellite. Mineralisation is grossly discordant to bedding, and lodes occur parallel to the local and regional axial plane schistosity (S2), with local thickening by folding. Structural studies conducted by Hillgrove indicate that the main controls on mineralisation are N-S striking shear zones (parallel to S2) and NNE-NE striking cross shears, and that the intersection of these defines the steep NE plunge of ore shoots. A consistent feature of all of the copper-gold mineralisation at Kanmantoo is that it formed shortly after the peak foliation forming event D2, in retrograde shear zones after the metamorphic peak. Activities undertaken during the first licence year included: - acquisition of IP survey profiles along the Kanmantoo Mine Corridor (previously reported in the annual report for ML 5776); - acquisition of ground magnetic survey data along the Kanmantoo Mine Corridor (previously reported in the 2005 licence year annual report for EL 3277) [see Env 10322]; - soil geochemical sampling along the Kanmantoo Mine Corridor (265 samples assayed); - rock chip sampling along the Kanmantoo Mine Corridor (105 samples assayed) [Note: the natural land surface over more than half of the area of EL 3298 is covered by the former mine's waste dump and tailings dam, so these places could not be surface sampled]; and - exploratory RC and diamond drilling along the Kanmantoo Mine Corridor, plus aircore drilling into the fill of the tailings dam down to the dam base clay seal layer, to bulk sample the tails material for its garnet content and garnet fragment size fraction distribution - the said drill programme annual statistics being 1 angled diamond hole for 108 m, 19 angled RC holes for 2115 m, and 96 shallow vertical aircore holes for 1024 m). This work indicated that substantial mineralisation may underlie the entire corridor, particularly to the north of the old open pit. During licence Year 2, Hillgrove conducted extensive exploratory and resource definition drilling campaigns that formed the basis of a Pre-Feasibility Study (PFS) which examined the economic potential of resuming mining operations at Kanmantoo. The PFS was completed in October 2006 by Roche Mining, and culminated in a decision to progress to a Definitive Feasibility Study (DFS), the intent being to make a decision on whether to recommence mining by the second half of 2007. Associated activities conducted on EL 3298 during 2006 included: - drilling of 4 angled HQ/NQ2 diamond holes at NW Zone, O’Neil Zone and the Venetia Star gold-only deposit, for a total of 338.08 m; - drilling of 39 angled RC holes at NW Zone, Green Zone, Cooper’s Find and Main Zone South, for a total of 3,940 m; - completion of a new resource model, which has boosted the global resource at Kanmantoo to now be almost 28 Mt @ 0.94% copper and 0.20 g/t gold; - structural geology investigations; - geochemical studies; and - metallurgical testwork and studies. The drilling results continued to add significantly to the global resource, with many of the known orebodies still remaining open along strike and at depth. A high grade core was delineated within O’Neil Zone which exhibits significant strike continuity and predictability. The follow-up through infill drilling of previous good individual drillhole results within Green Zone and North West Zone revealed these orebodies to have encouraging grade and continuity. Further evaluation drilling at Cooper’s Find highlighted the prospectivity of the area and opened up the possibility of it having an association with orebodies to the south. During the 2006 report period, Hillgrove commissioned Scott Halley of Mineral Mapping Pty Ltd to conduct a detailed study of the alteration and geochemical characteristics of the Kanmantoo copper deposit. The aim of this study was to identify a related trace element suite that has a tight primary dispersion, thereby enabling vectoring to help in drill hole planning. This need has arisen due to the fact that the copper dispersions detected in soil sampling at Kanmantoo exhibit a fairly broad halo. While this footprint is excellent for guiding exploration on the regional scale, it is not so useful in determining, for example, whether a drill hole has had a near miss to an ore zone. Other suggestions for targeting that Scott provided in his report included; - doing spectral mapping of drill core to differentiate between hydrothermal and metamorphic biotite and chlorite. - determining the proportions of metamorphic versus hydrothermal garnets through doing electron microprobe analyses on garnet grains. - using hydrogeochemistry data obtained via sampling of the groundwater cut in regional exploration drillholes, as this may indicate a ‘near miss’. A review of all previous metallurgical test work was conducted by consultant Tom Duckworth with the aim of developing an integrated process engineering approach to extracting both garnet and copper, as optimal ways of processing each of these commodities had only been examined separately in the past. A number of potential issues were identified with trying to jointly extract both copper and garnet, such as their different grinding requirements, and copper reporting into the garnet concentrate, hence affecting its quality and resulting in copper losses. Further trials on other separation methods are required to ascertain whether garnet extraction can occur without adversely affecting copper recoveries. At this stage though, it seems likely that garnet extraction will have to occur via a separate independent plant, and will treat waste rock still high in garnet content. On 18/10/2006, Hillgrove announced that the PFS for its Kanmantoo Copper-Gold Project, conducted by Roche Mining, had been completed and that it confirmed Kanmantoo to be an attractive project with a Net Present Value (8.5% discount) of $75 million, an Internal Rate of Return of 32%, and a net cash flow after capital commitment of $141 million at an average copper price of US$1.80/lb, with initial capital expenditure able to be recouped in the second year of operation. The project would have excellent leverage to the copper price, with a NPV (8.5% discount) of $134 million at a copper price of US$2.50/lb and an exchange rate of $0.70 to the USD, moving to a NPV of $216 million at a copper price of US$3.00/lb. In September 2006, Aaron Green of Resource Evaluations Pty Ltd completed a new mineral resource calculation for the Kanmantoo PFS, which is 27,998,000 tonnes @ 0.94% copper and 0.20 g/t gold. Hillgrove was confident that continued success in adding tonnes to this resource, plus assessing the value of the gold credits, and the potential impact of harnessing garnet and other possible by-product streams, would greatly improve the project’s economics and enhance the possibility of establishing a long-term mining operation at Kanmantoo. During licence Year 3, Hillgrove continued to conduct extensive exploratory and resource definition drilling campaigns to support a Definitive Feasibility Study (DFS) performed by Enesar Consulting. The DFS was completed on 18/12/2007, and after their consideration of its findings the Hillgrove Board of Directors deciding to progress towards mine development. A 2 Mt per annum production rate, yielding approximately 17,000 tonnes of copper in concentrate and 8,000 ounces of gold per annum, with an estimated net cash flow after tax (NCFAT) of $167 million (base case), was forecast as achievable from the currently defined resource [see below]. The various activities undertaken on EL 3298 during 2007 comprised: - RC drilling of 1 vertical water-monitoring bore at NW Zone, to a total depth of 33.1 m; - drilling of 60 angled RC holes at NW Zone, Green Zone, Emily Star, Paringa, Wheal Mary, Slot Extension and Main Zone South, for a total of 4408 m; - calculation of a new resource estimate, which boosted the global resource at Kanmantoo to 31.8 Mt @ 0.90% copper, 0.20 g/t gold and 3.1 g/t silver (representing (21.4 Mt of Indicated category and 10.4 Mt of Inferred category resources). The breakdown of this global figure by those of individual resource blocks was as follows: O’Neil Zone: 4.6 Mt @ 0.91% copper and 0.36 g/t gold North West Zone: 1.9 Mt @ 0.69% copper and 0.10 g/t gold Green Zone: 0.9 Mt @ 0.70% copper and 0.10 g/t gold Cooper’s Find: 0.4 Mt @ 0.60% copper and 0.10 g/t gold Venetia Star: 0.1 Mt @ 1.76 g/t gold. - the formal submission to PIRSA, in October 2007, of a Mining Lease Proposal (MLP) that covers an area of approximately 436 ha, and incorporates all of ML 5776 and EL 3298; - lithogeochemical studies; - making a comprehensive review and assessment of existing geophysical data; - the conduct of surface TEM survey trials on ELs 3277 and 3298 and on ML 5776 during September-December 2007; and - petrological studies. In February 2007, Hillgrove received the final results from a lithogeochemistry study conducted by Scott Halley of Mineral Mapping Pty Ltd. The study focussed on trying to isolate trends and geochemical signatures for mineralisation and alteration in the Kanmantoo area. The main findings of the study are summarised below: - the immobile trace elements indicated one geochemical population, suggesting a common provenance for the sediments; - all samples were strongly depleted in sodium, indicating an acidic hydrothermal system; - copper was found to be associated with silver and bismuth, but not with any other pathfinder; - the highest copper grades correlate with the highest acid alteration signature; - the local host rock assemblage appears to have no significant control over grade or metal assemblage; and - all of the Kanmantoo lodes sampled had a similar geochemical signature despite the differences in copper-gold ratios and the presence/absence of magnetite and pyrrhotite. In June 2007, Hillgrove contracted Jim Hanneson of Adelaide Mining Geophysics as a part time geophysicist/consultant for the Kanmantoo and Alford Projects. Jim’s first job was to review the historical data and to suggest what methods may be suitable for future trials. Up to this time Hillgrove had conducted a low level aeromagnetic survey, and had trialled gradient (array) IP and dipole-dipole IP methods on a prospect scale. The gradient IP proved to be partially successful, however, it was thought probably more likely that TEM, and in particular downhole TEM, might be better suited for use at Kanmantoo. Therefore in October 2007, Hillgrove contracted Jim Hanneson to review and interpret two trial lines of surface TEM data that had been newly collected at Kanmantoo by Zonge Engineering and Research Organisation, using 50 m and 100 m loop spacings. The lines were orientated in an east-west direction, with one line located immediately north of the existing pit, and the other to the south, over areas where the geology was relatively well understood. Despite early problems with the contractor's field equipment and excessive noise caused by wind interference, satisfactory data was recorded from the line to the south of the pit. Significant TEM responses were discerned which were interpreted to represent zones of disseminated mineralisation, but the method's effectiveness appeared to be closely related to the spacing between stations. It was concluded that significant ore zones could remain undetected unless the station spacing is tight (~50 m). Because useful surface EM data had been obtained at Kanmantoo, the trial was subsequently extended onto Hillgrove's Wheal Ellen EL 3232 [see Env 10811]. In September 2007, several drill core samples sourced from a number of different drillholes from different prospects were sent to Ian Pontifex and Associates to have thin-polished sections prepared and petrological descriptions completed. Facets to be explored by this petrological work included the mode of occurrence of gold, the relationship between gold and copper minerals, and genesis of the rocks in the samples. Findings of the report included: - the quartz-biotite-garnet country rock suggests former siltstone and/or pelitic precursor lithologies; - mineral assemblages suggest peak metamorphism conditions seems to have been 550-620°C at 300-400 Mpa; - retrograde chlorite is widespread in the core samples, with prograde chlorite also evident in several samples; - mineralisation may have initially accompanied the pre-peak metamorphic chloritic alteration, with later modification by partly retrograde chlorite; - some samples were noted to contain sparse fine bismuthinite, coarse pyrite and trace minute inclusions of gold and/or electrum in chalcopyrite; - gold was not seen in all specimens, despite the high gold assay values they had returned; and - no definitive relationship was established between copper minerals and gold, nor could evidence be seen of their respective relationship to the mineralising events. During licence Year 4, Hillgrove undertook the following activities: - drilling of 16 angled RC exploratory/appraisal holes into the Paringa, Green Zone South, Wheal Fortune, Slot Extension and Main Zone South lodes, for a total of 1050 m, this campaign being designed to convert as much as possible of the Inferred status resource to the Indicated category, through creating increased geological confidence. - completion of a resource update in February 2008. This calculation indicated the global resource at Kanmantoo to be 32.137 Mt @ 0.9% copper and 0.2 g/t gold. - completion of another resource update in November 2008. This calculation indicated the global resource at Kanmantoo to be 32.192 Mt @ 0.9% copper and 0.2 g/t gold. At this time, 77% of the total resource and 98% of the mining inventory was derived from Indicated or Measured category resources. A new Mining Lease, ML 6324 covering ~436 ha, was granted to Hillgrove by PIRSA on 14/10/2008, which incorporated all of EL 3298 and ML 5776 plus additional ground lying to the west that was part of EL 3277. The granting of the ML marked a major project milestone, and followed a period of detailed consultation with the community, government departments and major stakeholders. The next step for the company involved it preparing and later receiving acceptance of a Mining and Rehabilitation Plan (MARP), which was planned to occur early in 2009. No exploration-related work was undertaken during licence Year 5.