2002 ANNUAL REPORT - REVIEW OF OPERATIONS

Introduction

During the year the Company has varied its exploration strategy from regional large-scale evaluation of gold and base metal resources to focus on specific gold targets. Application has been made for exploration licences in New South Wales and Victoria over areas with drill indicated gold resources while continuing to maintain the Company's strong position in the Musgrave Block region of Central Australia. Goldsearch was recently granted clearance by the Central Land Council for entry to the Northern Territory region of the Musgrave Block. These are among the first approvals to be granted in over twenty years.

In the Musgrave Block area of the Northern Territory and South Australia, access agreements with the Central Land Council and Anangu Pitjantjatjara are proceeding with new urgency and entry to five Northern Territory areas is planned for the current exploration season. Exploration companies have to negotiate Indigenous Land Use Access agreements (ILUA's) with local inhabitants before being granted access to explore for mineral and energy resources in all states and territories.

During 2002 progress in the Company's joint venture with Independence Gold NL (Independence) intensified. Independence floated in early 2002 and has since purchased the Long Victor nickel mine from WMC Limited (WMC). The Company considers Independence to be an excellent exploration partner as it has access to WMC's database which includes past exploration programs in the Musgrave Block surrounding their nickel sulphide discovery in the west Musgrave region of Western Australia. The joint venture targets in the 31,610 square kilometres of Goldsearch exploration licences (ELs) and exploration licence applications (ELAs) are large, medium to high grade, gold and base metal resources in Pre-Cambrian host rock. No other joint venture has such an extensive holding in this under-explored area.

With the recent rise in the gold price to approximately US$320 per ounce the Company has pursued a strategy where it can have access, in its own right or by joint venture, to small high-grade gold resources, preferably with drilled resources, where short-term development options for cash flow are a real possibility. To this end, application has been made for a 17 square kilometre area in the small Moruya goldfield in southern New South Wales from which previous operators have produced over 20,000 ounces of gold. The Company has also applied for a 59 square kilometre area over the medium sized Lord Nelson gold mine at St Arnaud in central-western Victoria. This area has past gold production of over 400,000 ounces. In addition, the Company is negotiating several other gold production joint ventures on drilled high-grade gold resources in both Victoria and New South Wales.

Independence Gold joint venture
With five ILUA's in place over exploration licences in the Northern Territory portion of the Musgrave Block the Company is on the threshold of exploring Australia's last major under-explored Pre-Cambrian age mineralised terrain.

The Company's Musgrave Block interests comprise a semi contiguous block of 31 exploration licences and exploration licence applications covering an aggregate area of 31,610 square kilometres in the north-west of South Australia and the south-west portion of the Northern Territory border area. Access to the prospect areas, shown in the map on the inside back cover of this annual report, is via alternative routes that include the Stuart, Lasseter and Gunbarrel Highways.

WMC has already identified the potential of the Central Australian Musgrave Block geology as a new under-explored area similar to Voisey Bay Canada nickel sulphide discovery in 1997 and confirmed by their drilled nickel sulphide intersections at the Babel Nebo prospect of 26.5 metres of 2.45% nickel and 1.78% copper with minor cobalt and platinoids from 58 metres depth.

The Musgrave Block comprises an east-west trending thrust complex of Proterozoic (Pre-Cambrian) basement rocks extending 500 kilometres along the South Australian/ Northern Territory border and 250 kilometres into Western Australia.

The main structure of the Musgrave Block is the east/west trending Mann Fault and Woodroffe Thrust that extends the full 750 kilometre length of the Block. Giles Complex rock distribution is related to post intrusion geological history with the West Musgrave domain having better preservation. At 550 million years ago the last major structural event on the Musgrave Block, the Petermann Ranges Orogeny, witnessed north directed thrust faulting that uplifted the block and imparted the east/west structural grain. At the same time the southern margin of the Musgrave Block was thrust south over lower density younger sedimentary rocks of the Officer Basin as delineated in an abrupt gravity and magnetic geophysical signature marking this boundary.

Digital database formation
With the exception of the popular "Lasseters Reef" myth and countless expensive, fruitless searches from 1925, the detailed geology of the Musgrave Block is relatively unknown due to the remoteness of the area. Independence has undertaken a review of all technical literature available and completed an exploration history database. The total data sources were compiled into a regional dataset, not just of the Goldsearch joint venture areas, but for the whole Musgrave Block region.
This review has so far generated 50 prioritised target areas within the joint venture tenements that are variously prospective for nickel, copper, cobalt, platinoids, gold, silver, lead, zinc and diamonds as set out below.

Commodity	Model	1st priority	2nd priority	3rd priority	Total
Nickel, copper (cobalt, gold, platinoids)	Magmatic nickel-copper	11	5	-	16
Gold, silver	Lode/shear	2	1	4	7
Gold, copper	Copper-gold-iron oxide	4	4	5	13
Silver, lead, zinc, copper	Stratabound base metals	2	4	1	7
Copper, gold, silver	Sediment hosted	-	1	3	4
Diamonds	Kimberlite/lamproite/diatremes	-	3	-	3
Total targets		19	18	13	50

Magmatic nickel-copper-platinoid (cobalt) deposits
These represent nickel-copper targets with physical concentrations of base metal sulphides within, and proximal to, magma feeders and conduits associated with mafic-ultramafic rocks of the Giles Complex.

Localities: Extensive Ernabella and lesser Musgrave Range and Fraser Well intrusives on ELA 260/96 and ELA 342/96 are mapped on the Alberta map sheet along the north-east trending Mann Fault. Strong magnetic weak potassium geophysical interpretations indicate presence of Giles Complex beneath surficial cover. ELA 341/96 covers northern basal parts of the Giles Complex over an area of 30 by 8 kilometres and close to the Woodroffe Thrust.

The Birksgate gravity and magnetic anomaly lying within ELA 340/96 is interpreted by Independence to represent a high level Giles Complex intrusive emplaced at a similar crustal level to the Cavanagh Range intrusion which hosts the WMC nickel sulphide discovery to the west.

The Wanka Wanka Hill nickel prospect lies within ELA 343/96 associated with a 16 kilometre long north-east trending differentiated ultramafic dyke possibly a feeder dyke to the Giles Complex. Drilling by Kennecott in the early 1970's intercepted anomalous nickel-copper sulphide mineralisation within troctolite. This is a high priority target for field follow up.
The De Rose Hill prospect straddles the boundary between ELAs 262/96 and 343/96 and remains open to the west within EL 2910. The principal target is a series of discontinuous cobalt soil anomalies coincident with a linear magnetic feature over an area of 30 by 15 kilometres found by Aquitaine Petroleum Aust. in 1970. A further dyke within ELA 262/96 has a similar magnetic feature with anomalous nickel-chromium-copper-gold in rock chip assays and stream sediment samples.

Sediment hosted copper (cobalt) deposits
On the North Musgrave Block there is a rift sequence dominated by basic felsic shoshonite volcanics that may represent a sequence for primary gold and copper.

Stratiform lead-zinc deposits
A number of ironstone horizons, garnet quartzite and manganese rich rocks in the South Australian portion of the Musgrave Block are analogous to Proterozoic exhalative rocks associated with Broken Hill mineralisation at a similar 1,600 to 1,650 million years age. Many stratabound magnetic anomalies have been identified in the East Musgrave exploration licences that are thought to be possible Broken Hill style stratabound and/or vein silver-lead-zinc deposits. Ground follow up will be a high priority.

Copper-gold-iron oxide deposits
Large oxide copper-gold-iron associations are represented in many Proterozoic Provinces in Australia (e.g. Olympic Dam, SA, Ernest Henry and Selwyn in the Cloncurry area Qld, Tennant Creek and Alligator River areas in the Northern Territory). The extended Proterozoic magmatic history of the Musgrave Block recognition of iron rich rock types plus airborne geophysical "look alike" signatures indicates potential for these large deposits. For example in the Bloods Range two magnetic targets with copper-gold-iron oxide signatures are located within ELA's 5703 and 5701 as they straddle the Docker River copper prospects. Similar targets are within EL 9443 just south of the Lasseter Highway in the Docker River area straddling the boundary between ELs 22690 and 22710 in the Kulgera West area south-east of Uluru.

Lode gold deposits
The South Mount Harris prospect lies within ELA 5701 and has anomalous gold and base metal chemistry when sampled by Planet Metals in 1965 and 1968. The mineralisation is associated with quartz veining in granite which intrudes the Giles Complex. The A19 silver occurrence lies within ELA's 5703 and 5701 and Planet's 1968 rock chip sampling reported silver assays to 175 ounces/ton with a trace of gold and is located 6 kilometres south of the Docker River copper occurrences.

Exploration strategy and budget prior to prospect drilling
Independence has provided comprehensive programs and budgets for the first stages of exploration prior to high cost prospect drilling. Regional geochemical programs will use both vehicular and helicopter access based on a 4 to 6 kilometre drainage sampling density. Limited infill sampling will be undertaken on high priority targets if needed. Ground geophysical surveys are proposed for a number of the larger copper-gold-iron oxide associated targets and other magnetic features of potential interest prior to drill testing identified targets.


Gawler Craton, South Australia (EL 2899)
In June 2002 a heads of agreement was signed with Phelps Dodge Australia Inc. in relation to a joint venture to explore the base metal potential of the Hawks Nest tenement which covers an area of 340 square kilometres and is located approximately 100 kilometres north-west of Coober Pedy, South Australia. Under the terms of the agreement Phelps Dodge can earn up to 70% equity in the tenement by contributing $4,000,000 in exploration expenditure. Phelps Dodge will spend a minimum of $100,000 in the next 18 months.

Primary exploration targets are copper, gold, silver and uranium associations similar to Olympic Dam and Ernest Henry deposit models and gold associated with fault structures and shear zones such as at that found at the Challenger and Tunkillia gold deposits further south in the Gawler Craton.


Duck Creek, Cloncurry area, Queensland (EPMs 13336 and 13273)
Covering areas of 131 square kilometres and 6 square kilometres respectively, in two nearly adjacent areas, the Company's exploration prospect for minerals tenements (EPMs) contain copper, gold, bismuth and cobalt in granite sub-crop intruding surface mafic volcanics, dolerite, quartzite and meta-tuff sediments. During the past year the Company's consulting geologist, who has worked in the Cloncurry area for over five years, drew attention to a previously unmapped subtle airborne geophysical north-east trend. This north-east trend aligns the Duck Creek tenements to the Tick Hill small high-grade goldmine, located 75 kilometres south-west of the Ernest Henry large copper/gold mine. Of interest, is the raised radiometric background at Duck Creek and two other mines related to significant uranium content in the copper/gold iron ore.


High grade gold specific projects
Moruya Gold Mines, New South Wales (ELA 1916)
The area of six sub blocks covers four past gold producing mining prospect areas (Donkeys Hill, Donkeys Hill East or Candoin, Francis Hill and Old Silver Mine) and is located 7 kilometres south-west of Moruya. Previous small scale production from 1901 to 1952 of 20,000 plus ounces of gold and a greater, although unrecorded, amount of silver from 1840 to 1868. Production at the Old Silver Mine has been supplemented by recent exploration drilling for gold from 1983 to 1993 by CSR, Browns Creek Goldmines and GRD Resources. These additions to gold and lesser silver resources await exploration licence grant before field checking and supplementary infill and/or step out extension drilling to define grade boundaries.

St Arnaud, Victoria (ELA 4669)
This exploration area application covers 59 square kilometres to the immediate east and south of the St Arnaud township of 4,000 people. The town was four times this size 100 years ago when the Lord Nelson Reef, which is the twentieth largest gold reef mined in Victoria, crushed a million tons of quartz on its 400,000 ounce continuous production of gold from 1884 to 1914 from surface to nearly 800 metres depth. The Lord Nelson mine is under the Company's exploration licence application and represents a faulted anticlinal structure dipping 75⁰ west with historic mining widths of from 1 metre to 30 metres, over a 200 metre long structure. Further to the north-west the same reef structure was called different names due to different company ownership but only an extra 100,000 ounces of gold was produced from near-surface quartz reef development. Mining recommenced at St Arnaud in 1993 when Perth based International Mining Resources NL developed an open-cut mine at Sebastopol Hill, 3 kilometres north-west of the Lord Nelson Mine on the same line. Between 1993 and 1997 some 20,000 ounces (current value approximately AUD$11.5 million) was produced from the oxide zone between the surface and 30 metres depth.

The Company's future exploration will concentrate on a north-east trending mineralised cross fault structure in the vicinity of the Lord Nelson mine. Published technical, local newspaper and old miner's comments plus our consulting geologist's recent observations indicate the area was not explored in any detail.

Technology investments

In 1999/2000, along with a number of other Australian exploration companies, the Company sought to diversify into the technology sector. Two investment opportunities were undertaken for the prospective initial public offerings (IPOs) and stock exchange listings of Capital Markets Interchange (Capix) Limited and VisionZoom Corporation Australia Limited. These IPOs did not proceed due to market conditions and in 2000/2001 the directors decided to liquidate these technology investments and re-focus on exploration of the Company's mineral prospects.

The Company's still holds a minority interest of approximately 15% interest in Capix at a cost of $520,000. Capix is a Melbourne based IT software business which has developed and is marketing a suite of internet banking, stockbroking and corporate treasury software systems. Whilst there remains some prospect of recovering part, or all, of the investment in Capix this is uncertain and accordingly a full provision for diminution in the value of this investment was made at 30 June, 2001. The directors are monitoring the progress of Capix and will seek to maximise the return from the investment when a suitable opportunity for sale arises.