Marino Pieterse is the editor of Goldletter International. He has prepared a special report on Leyshon Resources. Goldletter International is the international independent information and advice bulletin for gold and related investments. The ASIA Miner presents Goldletter International’s report on Leyshon Resources. More information about Goldletter is available at www.goldletterint.com or e-mail info@goldletterint.com

Leyshon is one of Australia’s financially most successful gold mining companies having produced more than 2.7 million ounces from its Mt Leyshon Gold Mine in Queensland and distributed more than Aus$300 million to its shareholders over its 15 year life.

Today, Leyshon has divested its Australian mining and exploration interests and is focused on the emerging Chinese resource sector.

In 2003, Leyshon created one of the first Sino Foreign Joint Venture Companies in north-eastern Heilongjiang Province and entered into a unique province-wide agreement with the Qiqiha'er Brigade of the Heilongjiang Bureau of Geology and Mineral Resources to develop the Zheng Guang Gold-Zinc Project to production status.

The Qiqiha’er Brigade is one of the largest organizations of its kind in China and is providing a range of services to the joint venture from its complement of 4000 technical staff drill rigs, laboratory and other technical facilities.

Leyshon has completed its expenditure requirements to the amount of US$5 million to earn a 70% interest and has entered into a 20-year agreement with Qiqiha'er Brigade for the financing, development and mining of the project.

Leyshon is rapidly progressing the Zheng Guang Gold-Zinc Project and is aiming to jointly develop it as first ever Sino Foreign owned mine in the mineral rich Heilongjiang Province in 2008, with production expanding to more than 100,000 ounces of gold and 200,000 ounces of silver within 3 years.

In March 2007, Hellman and Schofield of Australia reported a recoverable resource estimate of 1.21 million ounces of gold, 3.72 million ounces of silver and 94,000 tonnes of zinc of which 50% was reported in the measured and indicated category.

The gold equivalent of this resource is estimated at 1.74 million ounces and the discovery cost to date has been less than US$5 per ounce.

The capital cost estimate of the project, as prepared by the Changchun Design Institute is Rmb 323.2 million (US$45 million), for a combined carbon in leach and flotation plant, which will be capable of processing both oxide and sulphide ore types.

Leyshon expects to produce a high-grade zinc concentrate, as well as gold and silver at its Zheng Guang Project.

Independent metallurgical consultancy Metallurgy of Australia has reported on a test work program undertaken by Australian Metallurgical & Mineral Testing Consultants that the treatment of ore can produce gold and silver metal through a conventional carbon in leach circuit and a high-grade zinc concentrate through the addition of a flotation circuit.

Gold and silver recoveries in the carbon in leach circuit are expected to be 89% and 74% respectively and 84% and 74% in the flotation circuit. Zinc recovery of over 90% is expected producing a saleable concentrate assaying over 45% zinc.

The proposed process route designs are based on a 1.5 million tonne per annum plant which will treat the near surface oxide and transition ores through a conventional carbon in leach circuit producing around 75,000 ounces of gold and 210,000 ounces of silver per annum.

The proposed flotation circuit will be added to treat the zinc-rich deeper sulphide ores. The circuit will comprise whole of ore flotation to produce a combined metal concentrate which will be reground and than leached to produce around 100,000 ounces of gold and 220,000 ounces of silver metal and then refloated to produce 17,000 tonnes of zinc concentrate containing 7000 tonnes of zinc.

Work has started on the optimization of these process routes, focusing on the improvement of gold and silver recoveries and optimizing grind size and reagent consumption and the application of flotation to very low zinc grade ores.

In 2003, Leyshon created one of the first Sino foreign joint venture companies in the north-eastern Heilongjiang Province when it entered into a unique Province wide Agreement with the Qiqiha’er Brigade of Heilongjiang Bureau of Geology and Mineral Resources (HLJ-BGMR).

After entering into the agreement, Leyshon reviewed more than 50 projects across the highly mineralized 469,000sqkm Heilongjiang Province and has undertaken detailed site based reviews of 20 of the most prospective.

The work has demonstrated that the province has a major epithermal gold belt, which has produced more than 20 million ounces of gold and has many similarities with the epithermal gold belt of the Drummond Basin in Queensland.

The Zheng Guang Gold Project, the first project to be tested under the agreement, is about 8km south-east of Duobaoshan and was discovered by the HLJ-BGMR in 2000 through a regional stream sediment sampling program.

Follow-up work during 2002 identified detailed soil sampling, diamond drilling, trenching, shafts and adits, defining strong mineralization at the Zheng Guang Prospect and outlining geochemical anomalies and other zones of mineralization over a strike length of 2km.

As well as testing the shallow potential of the deposit, the HLJ-BGMR also completed deep vertical drilling, confirming the depth extent of the mineralization to more than 350 metres in the southern section of the deposit.

In 2004 and 2005, Leyshon and its partner completed a highly successful 31,000 metres drill program on the project. A resource of 16 million tonnes grading 1.8 grams/tonne gold, 0.4% zinc and 5.2 grams/tonne silver, at a 0.5 grams/tonne gold cut-off, containing 934,000 ounces of gold, 64,000 tonnes zinc and 2.6 million ounces of silver, was estimated by independent resource specialists Hellman and Schofield of Australia in May 2006.

The 2006 drill program was the largest to be undertaken in Heilongjiang in recent years and comprised more than 13,000 metres of diamond drilling and 16,000 metres of reverse circulation drilling. It followed the highly successful 31,000 metres of drilling undertaken in 2004 and 2005.

Significant intersections included: 18 metres at 3.25 grams/tonne gold, 15 grams/tonne silver and 1.20% zinc and 17 metres at 3.91 grams/tonne gold, 18 grams/tonne silver and 2.65% zinc; 26 metres at 7.17 grams/tonne gold, 38 grams/tonne silver and 4.17% zinc; 6 metres at 4.61 grams/tonne gold, 23 grams/tonne silver and 2.35% zinc; 15 metres at 3.70 grams/tonne gold, 20 grams/tonne silver and 3.14% zinc, and 26 metres at 8.54 grams/tonne gold, 49 grams/tonne silver and 4.55% zinc.

This diamond drilling program has extended the main ore zone to the north-west and to depth, but has yet to close off the mineralization in either of these directions.

Of the reverse circulation program 364 holes of the total 588 holes were drilled into the oxide mineralization of the Main Ore Zone and 112 holes into each of the exploration targets at Zheng Guang North and South.

The aim of the Zheng Guang North reverse circulation program was to identify additional gold-zinc-silver mineralization, as well as locate shallow oxide gold mineralization. The program has been highly successful in identifying a 300-metre strike length of shallow high-grade gold mineralization.

Significant results included: 3 metres at 10.21 grams/tonne gold, 9 metres at 7.29 grams/tonne gold, 5 metres at 4.15 grams/tonne gold and 16 metres at 4.40 grams/tonne gold.

These assays are on strike from previously reported assays including 4 metres at 7.6 grams/tonne gold and 10 metres at 1 grams/tonne gold, plus 4 metres at 3.77 grams/tonne gold.

One drill hole penetrated the sulphide zone returning 7 metres at 3.6% zinc from 21 metres, indicating that the Zheng Guang North gold mineralization is zinc rich at relatively shallow depths.

As a result of the 2006 drilling program, in March 2007 Leyshon announced a significant increase and upgrade to its 2006 resource estimate by 8 million tonnes to 24 million tonnes containing 1.21 million ounces of gold, 94,000 tonnes of zinc and 3.72 million ounces of silver, as estimated by Hellmann and Schofield.

The gold equivalent content of these metals has been estimated at 1.74 million ounces at the 0.5 grams/tonne gold cut-off based on an assumption that 1% zinc is equivalent to 1.5 grams/tonne gold and 50 ounces of silver is equivalent to 1 ounce of gold. The overall gold equivalent content has been increased by 43% and there has been an upgrade of more than 50% of the resource in the indicated category.

The gold grade has lifted from inferred 1.8 grams/tonne to 1.95 grams/tonne indicated and indicated silver grade has lifted from 5 grams/tonne to 6.3 grams/tonne.

In October 2007, Leyshon completed a 43,100 metre diamond and reverse circulation drilling program budgeted at US$2.5 million and work is well underway on an upgraded resource estimate which is due for release.

The diamond drilling program completed 109 holes for 21,400 metres and was focused on in-fill drilling in the centre of the main ore zone. The majority of holes intersected strong mineralization with broad cumulative widths demonstrating good continuity both down dip and between important sections.

The results of the main ore zone are consistent with those previously reported for adjacent holes and collectively provide confidence that the revised resource estimate, will upgrade much of the 1.21 million ounces of gold, 3.72 million ounces silver and 94,000 tonnes zinc resources from inferred to measured and indicated status.

Some of the better final drill results include 20 metres at 8 grams/tonne gold from 1 metre below surface and 10 metres at 2.6 grams/tonne gold from surface, together with a number of holes reporting broad mining widths at good grades, all of which are within the current open pit design.

The main ore zone has been extended by more than 100 metres to the north with intersections reported from adjacent sections.

The 22,300 metre reverse circulation drilling successfully tested oxide ore zones across the main ore zone and potential new deposits previously identified at 6 geochemical anomalies across the exploration licence. It also included a sterilization program over the proposed area for the tailings dam.

Of particular note were the continuing encouraging results received from the Zheng Guang North Deposit with the mineralization continuing to extend in all directions.

Three holes all reported excellent intersections including 8 metres at 17.6 grams/tonne gold from 19 metres depth. In addition, one diamond drill hole reported three 10-metre intersections with the best being 17 metres at 2.6 grams/tonne gold from 95 metres.

The North Deposit, 750 metres to the north of the main ore zone, was discovered in the 2006 drill program and is showing good potential to be an immediate source of new surface mill feed.

Encouraging results were also reported from Zheng Guang South, and other targets, and these will be followed up in the 2008 program.

Three additional exploration licences were issued by the Ministry of Land and Resources in the last quarter of 2007, covering a highly prospective area adjacent to Zheng Guang. The new licences cover 83sqkm and include the highly prospective gold and base metal belt that extends from the Duobaoshan Copper-Gold Mine in the north-west, through Zheng Guang and beyond into the coal mining area in the south-west.

A major exploration program is being prepared by consulting geologists CSA Australia, which will target large porphyry-style gold-copper deposits, Zheng Guang style gold and base metal carbonate deposits and high-grade epithermal deposits.

The basic engineering design of the mine in close cooperation with the Changchun Design Institute, is progressing well. Independent metallurgical consultant Gary Patrick of Metallurgy Pty of Australia and Tim Hetherington of EPCM of Hong Kong are working closely together with the Changchung design team.

On March 25, 2008 Leyshon reported that the capital cost estimate of the project, as prepared by the Changchun Design Institute is Rmb 323.2 million (US$45 million) for a combined carbon in leach and flotation plant, which will be capable of processing both oxide and sulphide ore types.

Leyshon has placed orders for the manufacturing and delivery of two ball mills at the cost of US$ 2 million. The order was placed with Shenyang Heavy Machinery Group, one of China’s largest engineering groups based in the neighbouring Province of Jilin.

The 4.6 metre diameter, 750,000 tonnes per annum capacity mills are among the largest of their type to be manufactured in China and the first is scheduled to be delivered in August for the oxide circuit and the second in September for the sulphide circuit.

In addition to the order of the ball mills, the local power authority, Nenjiang Power Bureau has been contracted to engineer the supply for BMW of electrical power. Also, orders for the manufacture and delivery of crushers at a total cost of US$1.68 million have been placed with the Chinese subsidiary of Metso Minerals.

Feasibility studies and other reports completed by the Joint Venture in accordance with regulatory requirements have been submitted and approved by the relevant authorities.

An important step in the mining licence application has been achieved with the approval of the layout of the open pit, process plant and tailings dam by the Department of Lands and Resources.

After having spent US$5.0 million to earn a 70% interest in the Zheng Guang Gold-Zinc Project in Heilongjiang Province, Leyshon has entered into a 20-year agreement with the Qiqiha’er Brigade to bring the mine to production of more than 100,000 ounces of gold and 200,000 ounces of silver within 3 years.

The reported recoverable resource estimate is 1.21 million ounces of gold, 3.72 million ounces of silver and 94,000 tonnes of zinc, with a gold equivalent resource estimate of 1.74 million ounces.

With Leyshon emerging as one of the first foreign gold producers in the Heilongjiang Province of China and an upgraded resource estimate to be expected, in our view, at a market capitalization of Aus$114.5 million, including working capital of US$13.6 million as per December 31, 2007, the shares of Leyshon are substantially undervalued.

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