Ann: North Queensland Resource Update , page-3

It would appear the original aim of drilling at King Volume to upgrade the inferred resource to indicated status changed during the quarter to validating the indicated resource. They most likely did this to lower exploration expenditure during Q3 FY12, which I had anticipated but I didn't expect them to stop drilling King Deeps. Perhaps this is what the market expected, so you may be right.

There is a lot of blah blah...5 year strategy...blah blah...50m on exploration...blah blah...in every report. Like who cares, just give us the numbers. It's a given that companies have 5 year strategies, you don't have to sell in every media update. It makes you looks like you have nothing better to talk about.

There is then this number, which I find curious.

• Combined King Vol and Redcap polymetallic resource inventory increased to 9.716Mt after just six months of drilling – vs. 2-year target of 10-11Mt

Chillagoe Region

By my count King Volume was 3.3 MT and is now 2.7MT (down -500,000t) or 144,000t of pure zinc vs the former at 145,600t, so a small downgrade of -1600t.

As for Redcap I noted prior results were in 2008 for a total of 5.7 Mt:
- Victoria - Inferred Resource 3.4 million tonnes at 5.1% zinc and 1% copper.
- Morrisons or Queenslander - Inferred Resource 2-3 million tonnes at 6-10% zinc and 0.5-1% copper.

Updated 2012 result at Redcap:
6.96Mt @ 5.0% Zn, 0.8% Cu, 0.1%

That's about 1.26 Mt over but at the lower end of grade scales.

So before this drilling we had:
- 9 Mt (5.7+3.3)

After drilling
- 9.71 Mt (resource base up +7.7%)

They haven't really increased the resource based much. They have just confirmed what we mostly knew was already there.

The upside as I see it is the improvement of the defined grade within the main ore body. This lowers the cost to extract and sort ore as they indicated.

Central Region

The Balcooma resource also looks set to double to 1.03 Mt, which puts KZL on a promising start to upgrade the resource for the Central Region to 9-14 Mt.

Summary

Resource upgrades and improved quantitative qualification are always positive. Given the backdrop I'd re-rank my balanced scorecard as follows.

(this is just a technique I use to remove my own emotion as I believe comments here at HC have very little if any impact on daily volume)

1. Resource upgrade +4.5/10 (has a linger effect - but down from 9/10)

2. Financial results - Feb 15 - bound to show a poor result with maybe a 4 mill+ EBIDTA gain after taking into account Q1 - with perhaps 50% of this negativity expected and priced in -4.5/-10

3. Commodity price increases - good but offset by a rising AUD. Hedging is also probably more negative than positive now - neutral 0/0.

4. Lounge Lizard getting closer - positive but still distant in the mind of day traders. +5/10

So, 9.5/20 for and -4.5/-10 against or +47.5% positive, -45% negative.

Lounge Lizard will add +1 to point 4. each week until the end of March as will every 1c drop add +1 to point 2. as the AUD/USD may peak soon. The sooner we get to Feb 15 and past it the better.