King Solomon Mines

31 August 2010

Chairman's Address to Shareholders

Ladies and Gentlemen,

Another year has rolled by and the world, particularly in an economic sense, remains a scary place. The fledgling signs of recovery from the Global Economic Crisis to which I referred last year seem to have been overwhelmed by unsustainable fiscal policies of irresponsible European Governments and a loss of confidence in the pace and direction of the US economy in particular. It is not all doom and gloom however. Corporate profits are recovering and global bourses are creeping higher. The bell weather Dow Jones Industrial has in fact increased by around 10% since this time last year.

From the mining industries perspective, there has been a notable improvement in outlook. Demand for metals continues to be strong. China remains the cornerstone and, based on what I have seen recently in that country, is likely to be so for many years to come.

King Solomon Mines principal targets are copper and gold. Both metals have seen strong price appreciation since we last met. At the time of the last AGM, copper was trading at $US2.50 per pound and gold was $US950 per troy ounce. In mid August this year copper was around $US3.25 per pound and gold around $US1200 per troy ounce. These price increases reflect the strength of demand for our target metals. I don’t think there is much doubt about the Company’s commodity focus.

But it is one thing to target mineral deposits through discovery and an entirely different matter to achieve shareholder returns through success in this endeavour. I would like to take a few minutes today to reflect upon where we started this initiative only three and a half years ago and what shareholders might hope for in the future.

King Solomon was floated with the objective of finding world class gold and/or copper deposits by greenfields exploration in the virtually unexplored wastes of the South Gobi Desert in Inner Mongolia, China. The 2007 prospectus laid out the purpose of the fund raising which was to explore existing tenement holdings and to acquire and explore additional tenements which showed potential to host such deposits.
The Company has stayed true to that statement of purpose but some shareholders have expressed disappointment that, after three and a half field seasons, the Company has not announced a commercial discovery.

Oh, but it is that easy.

I can understand such disappointment as I went through similar sentiments in the first years of my career in the mining industry. When I joined Newmont in Australia in 1969 it had been exploring, dare I say, in a much easier environment, since 1966 without anything to show for its efforts. This discovery drought continued through 1971 at a time when metal prices were low and I and some of my colleagues seriously feared that we would be shut down by our owners at any moment.

Everything changed in1972 when we pegged some leases in the remote dunes of the Great Sandy Desert of Western Australia. Those leases contained what is now known as the Telfer Mine. Telfer is one of Australia’s major gold and copper producers. It now turns out about 800,000 ounces of gold and 36000 tonnes of copper annually.

That discovery was the cornerstone of a fabulous value creation story. It was the first of a string of great discoveries. It underwrote what is now Newcrest Mining Limited, a company with a current market capitalisation in excess of $A17 Billion. And this all came about from a discovery when the Company’s future was on a knife edge.

When I reflect on our fears at the beginning of 1972 I realise two things. Success in this business of discovery is not predictable or programmable. It requires both systematic and persistent dedication to a strategy. We set our strategy in 2007 and the Board intends to see it through.

Importantly what we have achieved to date is confirmation that the Company is in the right place to find world class deposits. We have had technical successes at both Marmot Ridge and Bu Dun Hua and control a substantial package of tenements around Sonid Zuoqi in what is clearly a gold rich region.

So far this field season we have had frustrations and, to be quite candid, some disappointments. Our start up was delayed by the unavailability of a suitable drill rig. When we sourced a rig it underperformed. Results from our work year to date on the Sonid Zuoqi tenements have generated only modest results, save for the Mud-House area. Surface and RAB drilling at Mud-House together with it’s regional setting are very interesting. The drilling difficulties referred to above have resulted in considerably less work than planned being achieved at Bu Dun Hua. The continued moratorium by the Inner Mongolian authorities on new licence issues has frustrated our generative programs.

We do however have much unfinished business on our properties and I remain convinced that the geological observations which attracted me to join King Solomon Mines Limited remain as valid today as they were three and a half years ago.