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Gympie Gold Update

ASX Announcement & Media Release

28 May 2001

Gympie Gold Limited is pleased to provide the following update on progress in relation to business plans for its three businesses - gold, gold gemstone and coal. Strategically, all three businesses are seen as long term assets of the company, with the potential to produce ignificant value and returns for shareholders.

GOLD

Wholly owned subsidiary Gympie Eldorado Gold Mines is set to produce a cash operating surplus of over $10 million in the 2000-01 financial year, from production of about 50,000 ounces at a grade of 10 grams per tonne.

In the following year to June 2002, production is projected to rise to about 80,000 ounces, an increase of 60% and we expect a commensurate rise in the cash operating surplus. The production increase comes from bulk mining the new stockwork zone in the Monkland Mine and the introduction of ore from the Lewis Mine which has just started contributing development ore.

The discovery of new stockwork zones adjacent to the Lewis Mine has raised the possibility of a quantum increase in production but it is premature to judge the likelihood or the scale of this potential on the limited drill results so far available. These results include an intercept of 18 metres at 8 grams per tonne (or alternatively 53 metres at 3 grams per tonne on the same drill-intercept) on a structure which is known to persist for over 1,000 metres. Intense drilling is currently underway as are studies looking at various development scenarios of tonnage versus grade.

To cope with increased production mill expansion will be needed. Plans have been made to increase processing capacity from 200,000 tonnes per annum to 320,000 tonnes per annum mainly by expanding the gravity recovery circuit for relatively little cost. Provisional plans have also been made for the construction of a new processing facility with a capacity of over 500,000 tonnes per annum to be built if continuing exploration success warrants a more dramatic expansion of production.

GYMPIE GOLD GEMSTONE

In the past year Gympie Gold has been developing an international gold gemstone business based on quartz stone with extraordinarily rich veinlets of visible gold found in "the jewellers' shops" zones which have been historically a feature of the Gympie mines.

Gympie Gold is not aware of any other gold producer in the world which takes a highly value-added mine product through to consumer markets.

After a considerable effort to develop this business it has reached a new level of maturity and now appears poised for substantial growth. Over the past year various product ranges have been launched in over ten countries, starting with the USA, the largest market for high-end gold jewellery in the world.

Gympie Gold will be featured next month as Gemstone of the Year at the largest annual jewellery trade fair in the USA - an accolade which demonstrates growing recognition of a unique product.

Gemstone quartz is by definition rare, even in the rich Gympie vein lodes. Currently, inventories of gold-in-quartz material have been built up to 100 kg which serves to ensure reliability of supply to our customers and is worth over $2 million to Gympie Gold when finally sold as gemstone.

The business, despite development expenditure, is now cash flow and earnings positive and is expected to expand strongly in the coming year. Its growth prospects are protected by the rarity of the raw material (very unusual anywhere in the world), the proprietary processing technology developed to optimise our customers' jewellery manufacturing yield and our newly established market position which views gold-in-quartz gemstone as synonymous with Gympie Gold.

SOUTHLAND COAL

Southland Coal lost six months out of the last year following the failure of its previous contract operator to meet production targets, followed by that contracting company going into voluntary administration.

Despite these setbacks Southland is finishing the year in a substantially better position than when it started:

Coal prices for Southland's distinctive semi-hard coking coal are up by over 20% in $US for the selling year commencing 1 April 2001. At present demand is substantially exceeding the company's capacity to supply.
Southland has appointed a new operator, Thiess Pty Ltd, a company which has a pre-eminent reputation in the field. Thiess has been appointed under two consecutive contracts covering the next 10 years of operations and has purchased a 10% stake in the Southland Coal joint venture for $11 million. Gympie Gold's wholly-owned subsidiary Southland Coal retains the other 90%.
Thiess' purchase implies a valuation of Southland Coal as an unlisted asset of not less than $110 million. This transaction also implies a Gympie Gold current share valuation of 85 cents per share without taking into account the gold business. (Details of the Thiess agreements are to be found in Gympie Gold's ASX announcement of 23 May 2001.)

The combination of coal product price increases and the Thiess operating arrangements means that Southland is now very well positioned to deliver strong returns for our shareholders.

Sales for the 9 months to the end of March 2001 were 170,000 tonnes. This figure will be exceeded in the June quarter and sales are currently running at a rate of 1.5 million tonnes per annum. Sales are planned to increase to 2.5 million tonnes per annum within 3 years.

Neither Southland Coal nor Gympie Gold owes any money to the failed previous operator, Colrok Australia, or any of its associated entities. We have lodged claims for damages of $39 million against Colrok and received claims against Southland Coal for $21 million. Most of Southland Coal's claims were lodged before Colrok's voluntary administrators were appointed, and Southland Coal is confident in the merits of its claims. As a precaution, we have made provisions in our accounts for $1 million for the future costs of potential litigation and have duly instructed our legal team.

GYMPIE GOLD LTD (GYM) - CORPORATE

Gympie Gold is on track for modest operating profits in the 2000-01 financial year (profits have been substantially affected by a six month delay in coal production). The Company has also earned an abnormal profit on the sale of 10% of the Southland Coal business at a price which is about double current book value. Sharply increased operating profits are expected in the year ahead as group revenues should more than double.

Group cash and unused financing facilities are currently $20 million which serves to underpin planned production expansion and exploration in the coming year.

The fact that the company's gold and coal businesses are poised to expand dramatically in the year ahead is a product of consistent reinvestment of all operating cash flows in those businesses over the last few years - years which were lean ones for most resource companies. Our decision to keep investing in the downturn has meant the company is now well positioned to take advantage of the better markets now prevailing for both businesses. The average $A selling price for our aggregate product range is higher today than it has been for over five years.

Encouraged by support from the investment community in Australia and in the UK, the decision has been made in principle to list Gympie Gold shares on the London Stock Exchange, probably in September/October 2001 on the AIM Board. To assist this process, the company's UK share registry commences operation in June 2001.

Directors are aware that holders of the Company's listed options need to shortly decide whether to exercise their options to buy Gympie Gold shares at 80 cents per share by 30 June. Exercise of all options would raise a gross amount of $21 million. These funds would be used to further accelerate expansions at Gympie Eldorado Gold, in particular the launch of an aggressive 5-year exploration program for the Gympie Goldfield starting with recent near-surface discoveries, and also to stand behind the continued development at Southland Coal.

A reminder notice will shortly be sent to all option holders.




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Last Modified: Friday, 23-Aug-2002 08:55:16 EST