PANAON GOLD PROJECT, PHILIPPINES

Late in the 2004-2005 financial year Goldsearch commenced a due diligence study of the Panoan Island gold project in the Philippines.

Based on the positive outcome of this study Goldsearch entered into a Heads of Agreement with Medusa Mining Limited in late September 2005 whereby Goldsearch will joint venture a gold project over the former Pinut-an Gold Mine and surrounding areas. Under the terms of the agreement Goldsearch can earn a 50% interest in the project by funding the first US$1,000,000 of project exploration and development expenditure.

The heads of agreement are conditional upon finance being obtained. Medusa Mining, which is a highly experienced operator in the Philippines, will be the project manager.

The Panaon Island gold project is covered by Exploration Permit number EP-2005- 000004- V111 of 1,646 hectares, which is held by Vulcan Industrial and Mining Corporation, a public company in the Philippines, and contains the previously abandoned Pinut-an Gold Mine.

The Panoan Island gold project comprises the epithermal Pinut-an gold deposit, two nearby exploration prospects (Bituon and Caingin Point) and the surrounding highly prospective regional exploration permits. Pinut-an is located on the south-east coast of Panoan Island, a 35 kilometre long by three to five kilometre wide island in the Southern Leyte Province of the Philippines. Panaon Island is immediately north of Surigao City in northern Mindanao, which is reached by domestic flights from Manilla. Access from Surigao City is by passenger boat and inter-island vehicular ferry.

Gold was reportedly first mined at Pinut-an by the Spanish and again by a number of American groups prior to World War II. More recently a number of companies are reported to have undertaken work in the area including Benguet Exploration, Lepanto Consolidated, BHP and Marcopper. The work by Benguet Exploration included the development of a number of new or pre-existing underground tunnels and openings as part of a small, underfunded mining project.

Gold mineralisation at Pinut-an, Bituon and Caingin Point is in typical high sulphidation epithermal quartz veins, developed as a system of quartz veins and minor stockworks, and is hosted by a sequence of Miocene andesitic volcanic rocks.
At the surface the Pinut-an system of gold bearing veins is currently defined over an east-west strike of approximately one kilometre and they occur within an extensive propylitic and argillic alteration zone. Individual veins have strike lengths up to approximately 400 metres and are quite narrow usually around 0.5 metres to one metre wide although previous underground mapping has
delineated zones up to four metres wide.

Mineralisation occurs in a fairly rugged range of hills which run down the eastern side of the island close to the coastline. At Pinut-an the elevation can reach up to 400 metres above sea level within a kilometre of the coastline. The mineralisation at Pinut-an is believed to extend along strike to the east below sea level, similarly the mineralisation is also believed to extend down dip below zero metre elevation. All historical mining activity has exploited mineralisation above zero metre (sea level) elevation and whilst significant remnant and new mineralisation is expected to be developed above this level the most attractive exploration targets are down dip below the zero metre elevation.

These targets are greater than 100 metres west of the present coastline and it is expected that water inflows in this area will likely be modest and easily manageable. Site investigation of a number of the historical openings suggests only very minor water inflows and good ground conditions above the zero metre level.

This style of epithermal mineralisation is often characterised by bonanza gold grades. Whilst the gold distribution at Pinut-an is known to be somewhat variable, gold grades well in excess of 100 g/t gold are reported for a number of areas.

Based on the similarities in mineralogy to other deposits the gold recoveries are anticipated to be on average up around 95%. The joint venture is targeting a small tonnage (50 to 100 tonnes per day) underground operation with a very high average head grade of 20 g/t in order to produce up to 35,000 ounces of gold a year at an average cost of production less than US$200 per ounce over a minimum five year project life.

Following rehabilitation of key, existing underground development the joint venture partners have formulated a staged exploration and trial mining program in order to define with sufficient confidence a mineable reserve at the project. Goldsearch believes, that if successful, this program could lead to the establishment of a highly profitable mining operation at Pinut-an by late 2006 or early 2007.

The Panaon Island gold project is similar geologically and probably metallurgically to the Co-o Mine operated by Medusa Mining on Mindanao. This mine was developed under old workings and is operating very efficiently. The resource base continues to expand as the mine is developed and further exploration is carried out along strike and with depth. As such the Company has the exploration and mining skills to assess and develop the Panaon Island gold project rapidly and efficiently and the object is to develop a project similar to the Co-o Mine.

There is a well established village at Pinut-an accessible by road and supplied by mains power.
Rehabilitation of the old workings is already under way and Medusa has the staff and equipment to quickly establish a full exploration team onsite.

Technical information in this review of operations relating to mineral exploration projects was prepared by Mr Trevor A Leahey, B.Sc (Hons) in Applied Geology and Exploration Geophysics, Mr Heath Hellewell, BSc (Hons) Geology, GSA and Mr Greg Duncan B.Sc MAusIMM and accurately reflects the information compiled by them.