Murchison Metals Limited (ASX:MMX) Quarterly Report For The Period Ended 31 March 2010

Perth, April 29, 2010 AEST (ABN Newswire) - As at 31 March 2010, Murchison Metals Limited (ASX:MMX) (PINK:MUMTF) was debt free and had cash and liquid investments of A$85.4 million, a decrease of A$17.0 million from the previous quarter. Included in this cash outflow are amounts paid to Crosslands and OPR of A$14.7 million to finance feasibility studies and exploration costs. Interest earned on investments for the quarter amounted to A$1.1 million.

During the quarter, significant changes in the structure of the iron ore market emerged. All three of the major seaborne iron ore producers announced that the majority of their customers would transition from the traditional annual benchmark arrangements to a mix of shorter term market based pricing arrangements. It is becoming increasing likely that the benchmark pricing system will become redundant, with prices set through a variety of market and index linked methods.

Market prices for iron ore have increased significantly over the quarter from around US$125 to US$135 per tonne of fines CIF to US$175 to US$185 per tonne in early April. Chinese officials have announced that GDP grew by 11.9% for the first quarter of this year. Chinese steel production remains robust, with iron ore imports in March rebounding sharply from a low in February to 59Mt for the month.

Chameleon Litigation

On 29 November 2007, Chameleon commenced legal proceedings against Murchison, Crosslands and several other parties. Chameleon is claiming an interest in the Jack Hills and Weld Range projects and/or Murchison's shares in Crosslands, arising out of a series of transactions that occurred in 2004 before the current Board and management of Murchison were appointed.

Following a four week hearing in October 2009, closing oral submissions were completed on 5 February 2010 and Justice Jacobsen reserved his decision. Further written submissions have subsequently been filed and the parties must seek to agree on a process for resolving a number of outstanding issues although this process is not expected to delay Justice Jacobsen's decision.

EXPLORATION

Rocklea Project (Murchison 100% interest)

Murchison's Rocklea Project is located in the Pilbara region between the towns of Tom Price and Paraburdoo and is situated near existing and planned rail infrastructure.

Since announcing a maiden resource in February 2009, Murchison has conducted a comprehensive infill drilling program, with a focus on the eastern part of the project and a higher grade zone identified as part of previous drilling campaigns.

Murchison has previously announced a revised Mineral Resource estimate of 89Mt at 59.9% CaFe at a 50% Fe cut-off including a higher grade portion of 46Mt at 61.5% CaFe at a 53% cut-off that may be suitable for direct shipping. At a 50% Fe cut-off the Mineral Resource comprises an Indicated Resource of 15Mt and an Inferred Resource of 74Mt1.

During the quarter, Murchison released the results of a scoping study for Rocklea which showed that an economically robust project is possible at Rocklea with resources sufficient to support potential production rates of up to 10Mtpa(2).

Highlights of the study include:

- Test work confirming that the Mineral Resource can be upgraded by simple scrubbing and jigging;

- Marketable product specifications being selected;

- Initial capital expenditure estimate of $370 million including $44 million contingency; and

- Delivered mine gate operating cost estimate of $21/t.

Murchison will continue to explore infrastructure options for the project to secure a viable transportation solution that would take product to port for export.

CROSSLANDS RESOURCES LTD (MURCHISON 50% INTEREST)

Crosslands is employing a two-stage strategy to develop its Jack Hills Project.

Stage 1 operations utilise contract mining, crushing and screening. Iron ore is transported to Geraldton by contract road haulage to ore storage and transfer facilities at the Port of Geraldton, ahead of shipment to customers.

The Jack Hills Mine Expansion Project is targeting a substantial expansion of annual production capacity. Ore from the mine will be transported by rail for shipment from the new Oakajee port being developed by OPR.

STAGE 1 OPERATIONS

Mining

Ore mined for the March quarter was 412,463 tonnes or 95,695 bcm. The total mined volume for the quarter was 401,923 bcm. Contract mining continued on a three panel arrangement for the first two months of the quarter, before reverting to a two panel operation due to a combination of a lower strip ratio and ROM stockpiles being full as a result of reduced crushing plant availability.

The strip ratio was 3.2:1. This was considerably lower than the previous quarter as the mining activity is down to a common level.

A total of 408,503 tonnes were crushed. The crushing plant experienced poor availability during the latter part of the quarter, which resulted in decreased production compared to the previous quarter's production. The proportion of crushed lump product was well above plan at 71%.

Haulage

Crosslands hauled 428,968 tonnes of ore to Geraldton Port during the March quarter. This haulage performance is slightly lower than the previous period due mostly to weather conditions causing flooding of roads.

Shipping

Shipping for the quarter consisted of seven vessels totalling 413,949 tonnes of which 321,084 tonnes were lump and 92,865 tonnes were fines.

Compared to the record volumes achieved in the previous quarter, shipping volumes in the March quarter were impacted by decreased sailing drafts at Geraldton Port. The Geraldton Port Authority has advised that it will be calling for tenders for a maintenance dredging operation later this year which should see a return to the port's design depths.

Marketing and Sales

The March quarter saw increasing tightness in the seaborne iron ore market supply/demand balance. Spot prices reached 20 month highs in March predominantly due to continued strong demand from China and improved conditions in other steel markets. The resulting pressure has tested the historical annual benchmark system in most traditional markets, with buyers and sellers moving to a shorter term, more flexible pricing system as the new iron ore year begins. Seaborne supply is expected to remain constrained in the coming quarters, particularly as shipments from India become restricted during the June to September monsoon season.

A total of seven mainly Panamax size cargoes were shipped during the quarter, mostly carrying high-quality lump ore. During the quarter, CRL made its first shipment to a Japanese customer which represents a significant achievement. Other shipments were made to China and Korea.

Building on a successful outcome to prospective customer visits in the December 2009 quarter, Crosslands continued business development for the Jack Hills Expansion Project (JHEP) with a further marketing campaign in January and February. As a result of efforts to date, there is a significant level of interest from a wide range of Asian steel mills in the JHEPs' concentrate products.

Geology

During the March quarter, resource definition drilling continued at Jack Hills and the next phase of exploration and resource drilling at the neighbouring Brindal iron deposit, located 2.5km south of the main Jack Hills iron deposit, was completed.

New high-grade massive hematite Direct Shipping Ore (DSO) assay results were received from drilling within the Brindal deposit. The mineralisation drilled to date is near-surface and amenable to open pit mining methods. The recent drilling recorded 6m - 100m thick DSO intersections with a weighted average grade of 65.2% Fe.

Best drill intersections include:

- Hole MHRC1120, 62 -162m down hole; 100m at 67.5% Fe;

- Hole MHRC1043, 58 -130m down hole; 72m at 68.5% Fe; and

- Hole MHRC1006, 50 -114m down hole; 64m at 68.3% Fe.

Brindal DSO mineralised lenses are now defined over a 900m strike length. The mineralisation remains open in several areas. The most recent drilling has extended the drilled DSO (massive iron mineralisation) zones by approximately 500m. The drilling and data from recent geophysical surveys indicate potential for further extensions.

Importantly, the drilling has also demonstrated the existence of additional beneficiable BIF mineralisation (BFO) at Brindal and has led Crosslands to upgrade the prospectivity of the remaining 3.5km of the unexplored Brindal gap for both additional DSO and BFO targets.3

Resource Definition Drilling

In April 2009, Crosslands recommenced resource definition RC and diamond drilling at Jack Hills. There are currently seven drill rigs in operation across the Jack Hills tenements, comprising four diamond rigs and three RC rigs.

In addition to further resource definition drilling, activities in the March quarter have been principally directed at providing key geotechnical data required for the final feasibility mine designs in addition to sterilisation drilling within the proposed mine infrastructure footprint.

During the March quarter, diamond and RC drilling advanced 3,954m and 23,388m respectively. 207 drill holes were completed.

Jack Hills Expansion Project

Study activities for the mine expansion project continued as planned during the quarter. A re-optimisation of the project was conducted following the significant resource upgrade announced in December 2009 and changes were made to flow sheets and plant layouts as a result. The changes were incorporated into the engineering design and drawings to allow estimates of capital and operating costs for the project to be progressed.

Sample preparation for discontinuous pilot test work was completed and bulk samples shipped to a laboratory in Perth. The equipment required for the discontinuous pilot plant testwork circuit was assembled.

A draft PER document has been submitted to the EPA, with the final document planned for submission in the June quarter.

Further geotechnical investigations for pit wall slope determination and sterilisation drilling commenced.

Land access requirements are currently being assessed and discussions with relevant stakeholders are continuing.

OAKAJEE PORT & RAIL (MURCHISON 50% ECONOMIC INTEREST)

During the quarter, OPR delivered a draft Bankable Feasibility Study (BFS) to the Western Australian Government. The BFS demonstrated a strong technical and operational feasibility for the development of the Oakajee port and rail project. It reflects the detailed engineering, technical studies and commercial analysis undertaken over the past three years and will allow the Western Australian Government to undertake due diligence to support its funding commitment to Common Use Infrastructure components of the proposed port development for the Oakajee Project. Capital costs associated with the project are summarised in the table below4:

-------------------------------------------------------------Capital Item                                       A$ million-------------------------------------------------------------Above Rail (including Rolling Stock)                    $ 422Below Rail (includes 546km of track)                   $1,805Port PUI Facility (Private User)                       $1,178Contingency                                             $ 343TOTAL OPR COSTS (Excluding Govt Contribution)          $3,748Port CUI (proposed finance by Govt Contribution)        $ 565Contingency                                              $ 60TOTAL CUI Costs (Common User)                           $ 625-------------------------------------------------------------TOTAL PROJECT COSTS                                    $4,373-------------------------------------------------------------

In addition, OPR has estimated cash operating and overhead costs at approximately A$300 million per annum.

Draft Implementation Agreements for both the port and rail projects have been substantially progressed with the Western Australian Government. The aim of the parties is to finalise the agreement by the end of 2010.

OPR carried out a formal capacity nomination process during the quarter, with nominations from mid-west miners exceeding initial Stage 1 capacity of 35 Mtpa at the new Oakajee port. In response to nominations, OPR now plans to increase initial capacity at the port by nearly 30% with studies during 2010 to focus on designing a port configuration, including two berths that will accommodate up to 45Mtpa of mid-west iron ore.

OPR also announced that it has selected Sinosteel Midwest (Weld Range project), Karara Mining (Karara project) and Crosslands Resources (Jack Hills project) as potential foundation customers. It is intended that these potential foundation customers will receive an offer of initial capacity for the new Oakajee port and rail system. OPR has commenced discussions with these potential foundation customers with the aim of agreeing memoranda of understanding and a due diligence process to define project timing, volumes and financial capacity.

In January, OPR welcomed its new Chief Executive Officer, John Langoulant. Mr Langoulant has more than 35 years experience in government and the private sector, as a former Under Treasurer in the Western Australian Government, Chief Executive Officer of the WA Chamber of Commerce and Industry and, most recently, as Chief Executive Officer of private investment group Australian Capital Equity.

During 2010, OPR will focus on finalising supply chain agreements and the completion of the BFS. The port is due to commence operations in early 2014. After completing MOU's with foundation customers, OPR will concentrate on negotiations for supply chain agreements.

Port and Industrial Area
Key activities during the quarter included:

- Delivery of the draft BFS to the Western Australian Government;

- Peer reviews of dredging program;

- 2D breakwater model testing;

- Planning and commissioning of BFS Final work packages;

- Revision of the Basis of Design for the BFS Final Study; and

- Further refinement of modelling of cost analysis and scenarios for Front End Engineering and Design Study.

Rail

Key activities during the quarter included:

- Completion of a final railway corridor alignment for inclusion in the Railway Corridor Nomination Report;

- Capital and operating expenditure estimates for the railway;

- Aerial Laser Survey of eastern sections of the rail alignment for engineering standard;
- Flora, fauna and Aboriginal heritage surveys, noise and visual studies, drilling and soil samples within the rail corridor; and

- Further consultation with key stakeholders on signals and communications system options.

Environmental

The Environmental Protection Authority (EPA) has previously advised that Oakajee terrestrial port and Oakajee rail developments will be assessed at a Public Environmental Review (PER) level. OPR continues to engage with the new Office of the Environmental Protection Agency (OEPA) to progress the draft PER together with feasibility works documentation. Activities during the quarter included:

- Environmental Scoping Document submitted to the EPA, with final submission to occur in the second quarter, 2010;

- Further revision of Environmental Management Plans for the Oakajee Port including Introduced Marine Organisms and Underwater Noise Management Plans; and

- Flora and fauna surveys continued for both the port and rail.

OPR is continuing environmental surveys and investigations which will provide baseline data to feed into a range of environmental management plans, which will form part of the wider Environmental Management Systems.

Indigenous Affairs

The quarter saw OPR continue its engagement with Native Title claimants, with the appointment of a new Indigenous Affairs Manager and Heritage staff and the commencement of Aboriginal heritage surveys for the haul road, port geotechnical programme and several bridge site surveys.

OPR is now preparing to commence negotiations for Comprehensive Agreements with Native Title groups following the completion of Negotiation Framework Agreements and Heritage Protocols with the Mullewa Wadjari, Wajarri Yamatji, Naaguja and Amangu Native Title groups in 2009.

Government

OPR continues to liaise with stakeholders on key planning and regulatory requirements, including meetings with Department of State Development, Department of Commerce, Australian Communications and Media Authority and the Department of Innovation, Industry, Science and Research on the interface of the project with the Square Kilometre Array Project.

Other activities during the quarter included:

- Discussions with the Western Australian Government on the CUI funding arrangements;

- Finalisation of Geraldton Port Authority Feasibility Access Agreement;

- Consultation with Landcorp Estate Managers on access within the Oakajee Industrial Estate;

- Consultation with freehold and pastoral landholders in the feasibility corridor of the railway; and

- Preparation of an OPR Railway Corridor Nomination Report.

OPR continues to liaise with representatives of the new Office of Environmental Protection Agency and EPA Service Unit, to progress all environmental approvals associated with the rail and port.

For the complete Murchison Metals Quarterly Report for the period ending 31 March 2010, please click the following link:

http://www.abnnewswire.net/media/en/docs/62728-ASX-MMX-488892.pdf

Contact

Trevor Matthews Managing Director Murchison Metals Ltd Tel: +61-8-9492-2600