Bass Metals Limited (ASX:BSM)

Metals Finance Limited owns a significant shareholding (12.4% as at August 2011) in Australian listed base metals producer Bass Metals Ltd. ( ASX : BSM). Bass is an exciting growth company and Metals Finance is optimistic about the future and potential growth of Bass Metals in the near future. Through the purchase of a large local treatment facility at significantly below installed cost (the Hellyer Mill), Bass has positioned itself for rapid development of other nearby polymetallic resources.

The Bass Metals business is focussed on three key assets which are the main value drivers in the Company:

• The producing Hellyer Mine Project (HMP),
• A major gold-silver resource,
• Highly prospective exploration acreage

The strategy has always been for the HMP to generate the cash flow to ensure a high level of systematic exploration to deliver further discoveries, and adequate funding to complete the gold feasibility study.

In addition, the Company's other assets - such as exploration drilling around Fossey, Fossey East and the new McKay discovery, as well as the ongoing gold test work results - have continued to deliver potential. Therefore the high-grade nature of its mineral resources coupled with the high prospectivity and the determination of the work force means that Bass Metals is well positioned to realise its growth potential.

Looking longer-term, the more conservative and conceptual study evaluating mining and processing the Fossey East resource indicates a possible operating surplus of approximately $20 million. Infill drilling within the high-grade portion of the Fossey East Resource is yielding positive, high-grade intercepts. The discovery of the new McKay Zone also demonstrates the potential for exploration of the Hellyer-Fossey trend to deliver additional discoveries.

The overall corporate strategy of the Company is to:

1. Deliver the forecast cash flows from the Fossey mine and bring Fossey East into the mining schedule as quickly as possible.
2. Increase exploration activities to increase mine life and underpin long-term cash flow.
   • Initial focus on the new McKay discovery and Fossey East Extensions.
   • Conversion of the existing Que River and Hellyer resources into reserves.
   • Systematic testing of new targets in wake of new discoveries in unexpected geological positions.
3. Complete detailed study of the Gold Recovery Project to a bankable standard as quickly as possible.

The prime objective is to grow shareholder value; the Company aims to make these activities self funding and reduce the need for further equity issues.

Recent updates:

Production from the Fossey underground mine progressed well with 109,000 tonnes of ore produced during the quarter, more than double the previous quarter's production and slightly below the target of 115,000 tonnes. The fourth milling campaign achieved excellent results in terms of throughput and recovery for all metals and concentrate products.

• Fossey Mine plan has been updated to incorporate modified resource model and additional mine dewatering capacity.
• Concentrate production significantly improved on March quarter despite a reduction in head grade, and comprised:
  • 7,656t of zinc concentrate grading 48% zinc;
  • 3,597t of lead concentrate grading 51% lead; and
  • 451t of copper-precious metals concentrate grading 18% copper, 6,352 g/t silver and 12.8 g/t gold.
• Infill drilling at Fossey East confirms high grade potential; 5.6 metres at 14.7% zinc, 5.4% lead, 0.7% copper, 109 g/t silver and 2.1 g/t gold.
• 7.0 metre drill intersection assaying 22.3% zinc, 9.9% lead, 3.4 g/t gold, 181 g/t silver and 0.7% copper highlights the new McKay discovery.

Bass Metals has provided, through its shareholders releases to the ASX a broad projection of potential cash flow from only the original Fossey orebody:

The HMP is estimated to generate a $45 million operating surplus in 18 months, net of the $13.6 million primary debt being repaid.

• Technical and operating cost assumptions are considered to be conservative as they are based on actual performances achieved to date.
• Does not include any upside from Fossey East resources which conceptually could contribute a further $20 to $30 million in operating surplus
• At "current" level metal prices & exchange rates: Zn-US$2293/t, Pb-US$2577/t, Cu-9031/t, Au-US$1538/oz, & Ag-USS$37/oz. AUD-US$1.06

EXPLORATION

Exploration activity in June 2011 has focussed on drilling in the Fossey East Resource area and along the Fossey Trend. Both these programs have been successful with a potential new discovery (McKay Prospect) along the Fossey trend and further high grade intercepts from Fossey East infill drilling.

In July 2011 Bass Metals intersected 5.9 metres of high grade massive base metal sulphide mineralisation and an additional 5 metres of barite and base metals mineralisation in diamond drill hole HLD1030 in a new target area between Fossey and Hellyer, referred to as McKay. The intersected 11.1 metre zone assayed 14.9% zinc, 6.5% lead, 2.6 g/t gold, 130 g/t silver and 0.7% copper.

This intersection is similar to Fossey East both mineralogically and in its geological setting. The mineralisation appears from orientated core to be steep and striking grid north-south. This drill hole targeted potential offsets of the Fossey deposit along the Jack Fault. The McKay prospect is a new discovery with potential for extensions both to the south and down dip. Previous drilling in the area intersected narrow high grade base metal intersections to the north and these intersections may be related to the same mineralised structure.

Bass' exploration geologists have observed that the mineralisation occurs much deeper in the geological sequence than previously thought prospective, which highlights new untested opportunities for the discovery of additional Fossey or Fossey East scale zones of mineralisation along the Hellyer-Fossey trend. Further exploration under Hellyer – Que River area includes Switchback, D-Zone and Que South. The company's regional exploration activities are focussing on the Heazlewood, Whyte River and Lake Margaret areas.

SPECIAL PROJECTS

Two major Feasibility studies are in progress and are focusing on the significant Hellyer Tailings Mineral Resource, which contains over 500,000t of combined lead and zinc, 800,000oz of gold and 32 million ounces of silver.