Adelaide, Oct 26, 2006 (ABN Newswire) - Known high grade gold targets around South Australia's Challenger gold mine are to be drilled under a decision announced today by Southern Gold Limited (ASX: SAU) to execute a new joint venture with Dominion Mining Limited.

While drill program details will not be finalised until next week, Southern Gold said today it planned to shortly commence drilling a range of targets within a 50 kilometre radius of the gold mine, located within EL 3270 in the northwest area of the Gawler Craton.

The decision to execute the JV with Dominion (ASX code: "DOM"), owner of the Challenger gold project, follows the completion by Southern Gold of a lengthy due diligence process over the acreage surrounding the mine.

The Company had earlier this year signed an exclusive option agreement to develop a gold-only Joint Venture on Dominion's eight exploration licences covering 3,000 km2 around Challenger.

"The mineralisation in the Challenger region is highly complex," Southern Gold's Managing Director, Mr Stephen Biggins, said today.

"Under the JV executed today, which included access during the due diligence to an updated structural model of Challenger, we can now apply accurate drilling techniques to a number of previously identified high grade targets," Mr Biggins said.

"This substantial drilling program will be complimented by geophysical methods previously untried in the region to seek to discover another high grade, low cost gold mine like Challenger," he said.

The terms of the JV commit Southern Gold to $500,000 of exploration expenditure on the tenements over the next 12 months.


On the completion of $1m expenditure within 24 months, Southern Gold will earn a 30% interest. Southern Gold will give up any interest in the gold-only JV if it does not spend a total of $2 million by the end of the third year.

The proposed expenditure of $2 million will give Southern Gold a 51% interest in the broader Challenger acreage. If Dominion does not participate at 49%, Southern Gold can earn 80% by the expenditure of a further $2 million over year four to six.

Southern Gold has an additional 1,500 km2 of exploration ground in the area. The shallow high grade Challenger intercepts to be priority drilled include:

- Golf Bore

- 52 g/t in hole (H) 280, 71-72 m

- 26 g/t in hole 286, 51-52 m

- 11g/t in hole 290, 75-77 m

- Mainwood

- 33.5 g/t, 25g/t, holes 16 (35-36 m) and 107 (31-32 m)

- Typhoon

- 37g/t in hole 78, 33-34 m

- 34 g/t in hole 121, 48-9-49 m

- 33 g/t in hole 122, 57-58 m

- 25 g/t in hole 47-48 m

- Monsoon

- 23g/t & 20g/t in SW plunging shoot (1m intervals H 223 & 234)

- 9.7 g/t - open to west (hole 267).

"Our modelling suggests these targets may be indicators of much larger mineralising systems than previously thought," Mr Biggins said.

"These shallow targets are thought to be geologically similar to the deep drill intersections of the M1 ore zone at Challenger and which forms the majority of the Mining Reserves at Challenger.

"We believe the JV targets have the potential to develop in size beyond the previously interpreted narrow and discontinuous intersections, with some thickening of the gold bearing 'envelopes' suggesting the development of high grade plunging gold 'pipes' at Golf Bore for example."

Challenger is currently one of Australia' most profitable gold mines, with mine production at Challenger for the June 2006 quarter of 25,912 ounces at a cash cost of $329/oz at a grade of 9.03g/t.