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Update On Southland Colliery

16 January 2003

Gympie Gold’s 90%-owned Southland Colliery is further delayed in reaching budgeted production. An explanation and background follows.

As previously foreshadowed, by December 2002 Southland had mined through a zone of in-seam-shearing, mined out of the abutment zone, and revised operational practices including roof-support and personnel rostering. We then commenced returning the longwall unit back down to the seam floor where mining conditions and coal quality are expected to support full production as compared with only 373,000 tonnes for the December half.

This transition down within the seam requires complex strata management. This commenced in December but has now suffered a setback that has fettered Southland's achievement of budgeted production rates of more than 800,000 tonnes for the second half. A roof fall has occurred at the longwall face that will delay the transition to the seam floor until mid-February. During this transition period, low production rates are expected to continue as the longwall progresses slowly and safely downward to the bottom of the seam.

Managing Director Mr Harry Adams said "About 3 million tonnes of coal is developed and ready to extract, worth some $175 million in revenue terms. The delays in achieving full production are therefore particularly frustrating."

Southland's production of 373,000 tonnes of run-of-mine coal during the December 2002 half is about 200,000 tonnes below profit break-even level. Southland will therefore contribute to Gympie Gold's December half-year results revenue of $26 million, an operating loss before interest, tax, depreciation and amortisation of $2.5 million and an operating loss before tax of $9 million. These figures are based on preliminary accounts which have yet to be reviewed. This is a very disappointing six month result but the Company views both the short and long-term future of the colliery with confidence.

Mine development continues to improve. Until recently the mine required four development units to achieve the required advance rates but now requires only a single development unit for the next few longwall blocks.

A material step has been taken to further mitigate the longer-term risk of repeated poor production when encountering such mining conditions. After extensive expert review of the longwall operation by geotechnical and mining consultants over the past six months, Southland has brought forward modernisation of the longwall face equipment. This project had previously been scheduled to cost over $50 million and to be undertaken around 2006. Now, a near-new longwall face has been procured and replacement of the key half of the old longwall has been arranged for late 2003 to coincide with commencement of the next longwall panel SL4. Along with upgrades to the entire longwall, the total package of works should cost under $10 million and should underpin production expansion to 1 million tonnes per half-year from then.

Managing Director, Mr Harry Adams, added "Although the difficult mining conditions are expected continue for the coming month, it is not hard to see that material success is near. We now have in-place a very large block of fully-developed coal, mine development continues to improve; and more modern longwall supports will be introduced on the next block at a low cost.

"Gympie Gold has every confidence in the combined abilities of the alliance partners, Thiess and Southland, to build up the operation to its targeted capacity of more than 2 million tonnes per annum. Our responses to recent problems have been decisive and appropriate to the conditions encountered.

"We will shortly have established Southland as a 2 million tonne per annum producer of high-quality metallurgical coal for a very low capital investment over the past 4 years. It's been challenging but worthwhile.

"Some sales to existing customers have been rescheduled to best accommodate these production delays. As an independent supplier with the ongoing support of a diverse customer base, we work very hard to satisfy our customer's requirements and meet the growing demand for low-ash, high-fluidity coal."

Gympie Gold is an Australian exploration, production and marketing company which mines and markets gold and gemstone from southeast Queensland and high-quality coking coal from the Hunter Valley in New South Wales.

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    Last Modified: Thursday, 16-Jan-2003 17:03:47 EST