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Notice to Shareholders

05 January 2004

As you will be aware, a very serious underground fire occurred at the Southland Colliery over the Christmas period. The purpose of this letter is to inform shareholders about the devastating consequences this disaster and to advise that the General Meeting of shareholders scheduled for 8 January 2004 will not be held

On 23 December, elevated gas levels were detected and the mine was evacuated. On 24 December, the situation escalated into an emergency as a "heating" indicated increased potential for spontaneous combustion of in-situ coal. On 25 December, the heating worsened and a fire commenced underground, which was suppressed by changes to mine ventilation. On 27 December, further containment was effected by injection into the mine of suppression gases, which choked oxygen supply to the fire. The fire has been suppressed and the mine sealed in a manner which will allow flexibility as to re-entry or ultimately permanent closure, if such a course is dictated by safety or economic considerations.

We are enormously relieved that not a single injury has been incurred. An expert working group continues to evaluate the conditions in the underground mine and how best to make the mine safe for re-entry. It may remain unsafe to re-enter the mine for a protracted period. It will be necessary to physically inspect the mine workings and equipment underground in order to reasonably estimate the cost to potentially re-commence production.

The financial circumstances facing the Company were reviewed by your Directors. The Board determined that the Company faced the possibility of not being able to meet its debts as and when they fell due, given that a) Southland would be incurring extra costs and not generating income for at least several months, b) the second tranche of the recent $25 million placement would not proceed, and c) additional funding could not be raised whilst there was uncertainty of resuming production at Southland. In these circumstances, Corporations Law is very precise about the duties of the Board. Your Directors immediately and reluctantly appointed KPMG as Voluntary Administrators of the Company. The Company's major lenders then appointed Ferrier Hodgson as Receivers and Managers.

The Company is likely to remain in Receivership and Administration for at least several months. During this process, trading in the Company's shares will remain suspended. The ultimate outcome of this process is for the Company's shares to either re-commence trading or be delisted. In the meantime, Gympie Gold will strive to continue to meet its reporting obligations to the ASX as a listed company and post information on its website.

These events have been an enormous disappointment to the entire organisation. The Board of Directors, Managing Director and staff of Gympie Gold are pro-actively assisting the Voluntary Administrators and Receivers and Managers, with a view to preserving as much value as possible for all stakeholders.



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    Last Modified: Monday, 05-Jan-2004 17:09:13 EST