Bananghilig Drilling

Medusa Mining Limited

(ASX & LSE: MML)

12 September 2011

BANANGHILIG DRILLING VERIFYING RESOURCE and EXTENDING MINERALISATION

Medusa Mining Limited ("Medusa" or the "Company"), through its Philippines operating company Philsaga Mining Corporation, advises that the drilling at the Bananghilig Gold Deposit is verifying the resource of 650,000 ounces and extending mineralisation laterally and to depth.

The Bananghilig Deposit is within the regional scale Tambis intrusive-breccia complex where the mineralisation is associated with a combination of multiple diatreme breccias, northeast-trending structures and various intrusive rocks.

Highlights include:

Geoff Davis, Chairman of Medusa commented:

"We are on our way! It is very pleasing to be able to report that new drilling is verifying and extending the historical drilling results on which the Bananghilig resource is based. The geology is complex but now with 93 new holes already completed, a good understanding of the geology and mineralisation controls is taking shape. This mineralised system has the potential to grow significantly beyond the three open zones already being defined and totalling approximately three kilometres of mineralisation.

The diatreme breccia is open to the south below younger shallow sediments, and we expect possible additions in this direction, as well as along the extensive northeast-southwest structural corridors.

Drilling will continue into 2012."

BACKGROUND

The Tambis Project, containing the Bananghilig Gold Deposit as shown on Figure 1, is operated under a Mining Agreement with Philex Gold Philippines Inc. over Mineral Production Sharing Agreement ("MPSA") 344-2010-XIII which covers 6,262 hectares.

The area has been known as an alluivial gold producing area since Spanish times. The first modern exploration pre-Medusa group was conducted in the 1970s followed by further work in the 1990s. The Company commenced a concerted effort in July 2010 and drilling prior to this is summarised in Table I.

Table I. Summary of the historical drilling statistics for Tambis-Bananghilig Project area

Abbreviations:

Sorex: A. Soriano Corporation (on behalf of Atlas Consolidated Mining and Development Corporation ("ACMDC")

Philex: Philex Gold Philippines Inc. ("Philex")

Philsaga: Philsaga Mining Corporation

In 2009, Cube Consulting Pty Ltd estimated Inferred Resources for the deposit based on the historical drilling as shown in Table II. The timing of a new resource estimate will depend on drilling progress.

Table II. Bananghilig Deposit Resource estimate as at August 2009

Additional recent regional geological and mineralisation information is contained in the announcement dated 10 May 2011.

AIM OF PROGRAMME

In July 2010, new regional and detailed mapping and drilling programmes were commenced with the aim of validating the current resource and extending it to provide a reserve of approximately 1,000,000 ounces. This reserve would form the basis for a feasibility study which would target production of 200,000 ounces of gold per year from a new milling facility.

REGIONAL GEOLOGICAL SETTING

The Tambis regional geology, termed the Tambis intrusive-breccia complex, typifies a structurally complex intermediate-sulphidation, epithermal gold, breccia-type system, including disseminated gold overprinting the host Tertiary-age igneous package which had been emplaced into an andesitic volcanic basement. The fertile igneous suite comprises a multi-phase calc-alkaline, high level, sub-volcanic intrusive package cut by extensive bodies of phreatomagmatic diatremes and hydrothermal breccias.

Laboratory studies including fluid inclusions have indicated that the Tambis area is only shallowly eroded with an estimated 500 to 950 metres of material stripped from the original surface.

The Tambis intrusive-breccia complex is overlain by younger marine limestones and basal mudstones to the south and the east. The extent of the complex below this younger cover is yet to be determined.

Figure 1 (please see the link at the end of this announcement) shows the location of the Tambis intrusive-breccia complex

BANANGHILIG DEPOSIT DESCRIPTION AND MINERALISATION

Introduction

Figure 2 shows that the Bananghilig Deposit currently consists of three zones, each approximately 1 kilometre long and open in all directions, locally termed the Sorex, Garden and Malinao zones. These zones are broadly defined on the basis of the projection in plan of ≥0.5 g/t gold drill hole intersections. The bulk of the current resources are in the Sorex and Garden zones.

Figure 3 shows the cross section through line 10710N. Assays above 0.5 g/t gold are depicted in histograms.

In breccia hosted deposits the mineralisation is commonly not uniformly disseminated or distributed due the presence of fragments/clasts/blocks in finer matrix material, ie, the host rock to the mineralisation is extremely inhomogeneous. Consequently the location of the mineralisation within the breccias is influenced not only by the structural emplacement of veins, breccias/fractures and disseminations, but also by the relative distribution of the fragments and matrix and the susceptibility of each to mineralisation. This style of mineralisation should be considered as a bulk mining proposition where mineralised domains are established, and generally cannot be evaluated simply on the basis of individual assay intervals.

Deposit Geology and Mineralisation

The Bananghilig Deposit (Fig. 2) is located partly within diatreme breccias which measure at least 1,000 metres west to east and still open to the south beneath the younger sediments, and also around the diatreme margins and in the country rocks along structural corridors.

The diatreme breccias contain unsorted fragments of the andesitic basement as well as fragments of the later intrusive rocks predating the diatreme events in a matrix of comminuted rock flour and magmatic crystals. Fragment sizes range from granule-sized to building-sized mega-blocks which have been torn off the walls of the diatreme during the multi-episodal explosive activity. The explosive activity also fractured the mega-blocks and wall rocks, preparing them for subsequent mineralisation deposition. The cross-section in Figure 3 shows several of the mega-blocks which are the same composition as the wall rocks in this area.

After the diatreme formation, several events of hydraulic fracturing, hydrothermal and fault brecciation, rock alteration, quartz veining and precious- and base-metal mineralisation occurred. Based on mineral associations and fluid inclusion results, the main gold deposition event appears to have occurred following multiple hydrothermal fracturing along the margins of, and within the diatreme complex. High gold concentrations appear to be associated with elevated Ag and base metals.

The gold mineralisation style (+Ag ±Zn ±Cu ±Pb) is classified as an intermediate sulphidation epithermal system. In and immediately adjacent to the diatreme, the gold mineralisation generally occurs in vein-like zones, in fractures and/or breccia in-fill in milled/fluidised muddy matrix breccia bodies and coarsely brecciated/fractured andesitic-dacitic wallrock. It should be noted that the vein zones shown on Figure 2 that are in the area of the younger sediments are projected from below the limestone contact.

Breccia veins in the deposit exhibit epithermal mineral growth textures and in particular are related to retrograde boiling of the mineralizing fluids. Major hydrothermal breccia veins are sub-vertical to steeply dipping, averaging one metre thick, and form anastomosing pinch-and-swell patterns up to several hundred meters along strike. They are commonly offset in many places by post mineralisation faults. Down dip continuity of breccia vein mineralisation has been demonstrated to persist down to 500 meters from surface. The breccia veins generally form a northeast-trending sub-parallel array with minor north-south and east-west trends.

Widespread silica-illite-pyrite hydrothermal alteration affects the volcanic wallrocks, the various breccia bodies and the hypabyssal intrusives associated with them. The pervasive near-surface argillic alteration haloes grade laterally and vertically at depth into chloritic and propylitic alteration assemblages.

Figure 2 (please see link at the end of this announcement) shows the interpreted geological map showing drill hole locations and section line 10710N.

Firgure 3 (please see link at the end of this announcement) shows the cross-section 10710N through the Sorex and Garden Zones.

DRILL RESULTS

Since 24 July 2010 to 31 August 2011, 32,311.05 metres of diamond drilling in 93 holes have been completed. The drilling is on-going with 7 rigs in the area.

Figure 2 shows the post July 2010 drill hole locations as blue dots and drill hole traces for all the drill holes with assays available (TDH 027 to TDH 102) at 31 August 2010. All pre-July 2010 drill holes are shown as black dots for collar positions.

First pass assaying for gold has been undertaken on all samples submitted to the laboratory. Additional assaying is underway from selected intervals for base metals, silver and other elements.

The results are summarised in Table II where significant intercepts are defined on the following basis:

(i) lower cutoff grade of 0.5 g/t Au, and

(ii) ≥ 5 metres downhole intercept width at ≥ 0.5 g/t Au, or

(iii) ≤ 5 metres downhole intercept width at ≥ 5 gram*metres, and

(iv) maximum of 3 metres of downhole internal dilution at ≤0.5 g/t Au.

Table II. Sorex and Garden zones surface drill hole results.

Notes:

(i) Intersection widths are downhole drill widths not true widths;

(ii) Assays denoted by (*) are by Philsaga Mining Corporation's laboratory, all other assays are by McPhar Geoservices Inc. in Manila;

(iii) Check surveying of collar positons in progress;

(iv) Grid coordinates based on the Philippine Reference System 92.

DISCUSSION OF RESULTS AND STATISTICAL COMPARISONS

Statistical comparisons have been undertaken between the two historical drilling assay data sets and the new drilling assay data set. The drilling since July 2010 supports the grade tenor shown by the historical drilling, particularly the drilling by Philex. The Sorex drilling was more concentrated on a higher grade zone in the northwest part of the Sorex zone which may have skewed the Sorex data set. However when the higher grade subsets and the lower grade subsets are compared, the subsets are statistically comparable. 

Drilling was undertaken to twin some of the historical drillholes of Sorex, Philex and Philsaga. Drill hole TDH 062 was the first drill hole to be completed in the Sorex area. Results from this hole correlate well with nearby drilling considering the nature of the mineralisation.

The recent drilling has extended the limits of the known mineralisation to the northeast and southwest along the strike of each of the Malinao, Sorex and Garden zones, and southeast beneath the younger sedimentary sequence, and at depth. 

Essentially the mineralisaton is open in all directions with the potential for the discovery of additional resources.

DRILL HOLE SAMPLING AND ASSAYING PROCEDURES

Drilling Procedures

Drilling, sampling and analytical methodologies are of internationally acceptable standards. Drilling and analyses are carried out by independent contractors, SBF Philippines Drilling Resources Corp. (SBF), and Intertek Testing Services Philippines, Inc. (Intertek) respectively.

Drilling is carried out by SBF using wireline diamond coring techniques, with the core being predominantly HQ triple-tube (HQ3) diameter (OD 61mm). The holes are initially collared using PQ drillbits (OD 123mm) to recover PQ3 core (OD 83mm) until the drillbit encounters competent ground, then the coring bit is reduced to HQ3 for the remainder of the drill hole. If difficult conditions are encountered, then the drill bit is changed to NQ3 (core OD 45mm) and the hole continued until the planned depth or bad ground conditions prevent further drilling, whichever occurs first. Core recovery is generally better than 95% and is considered to be good.

Drill Core Sampling

Drill core is recovered from the inner tube and handled carefully to preserve the integrity of the drill core. Structural measurements are taken: Rock Quality Determinations (RQD,) and Fracture Densities. The core is then placed in plastic core trays, aligned, photographed and marked up for sampling.

The drill core is then cut in half by diamond core saw and sampled at one (1) metre intervals or at lithological boundaries. The samples are placed in individually labelled plastic sample bags, a sample number ticket included, and then sealed for despatch to Intertek's Sample Preparation laboratory in Surigao City. The integrity of the core samples are supervised at all times by the geologist until despatch to the laboratory where they are accompanied by company personnel until receipt by Intertek.

One Certified Reference Material (CRM), one Blank and if possible, one Duplicate is included within each successive group of twenty samples that are submitted to the laboratory. QA/QC monitoring of the drilling program and the results is ongoing.

Analytical Procedure

Sample preparation is undertaken by Intertek at their Surigao City laboratory, where each sample is registered, dried at 105ºC for 6 to 8 hours and crushed to 95% passing 2 mm by jaw crusher, before a 1kg split is taken for fine pulverising, using a riffle splitter or rotary sample divider. Pulverised sample is nominally pulverised to 95% passing 75μm (200 mesh).

Quality control procedures include a 1 in 15 resplit after crushing for partial preparation and after pulverising for total preparation. These resplits are also analysed and included in the analysis report. Sizing tests are carried out on 1 in 20 assay pulps at 75μm (200 mesh) to monitor the pulverising stage. Four 250 gram splits are obtained, one for sample analyses and the remaining three for storage for future reference.

Standard laboratory procedure is to clean the crusher and pulveriser after each sample treatment with barren material and/or bowl wash, to minimise carry-over contamination.

Pulverised samples are analysed by classical fire assay techniques on a 50 gram charge with Atomic Absorption Spectrometer (AAS) finish. All assays over 5 g/t gold and other selected samples are re-assayed using gravimetric fire assay techniques on a 50 gram sample.

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Information in this report relating to Exploration Results has been reviewed and is based on information compiled by Mr Geoff Davis, who is a member of The Australian Institute of Geoscientists. Mr Davis is the Chairman of Medusa Mining Limited and has sufficient experience which is relevant to the style of mineralisation and type of deposits under consideration and to the activity which he is undertaking to qualify as a "Competent Person" as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves" and is a "Qualified Person". Mr Davis consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

Information in this report relating to Mineral Resources has been estimated and compiled by Mark Zammit of Cube Consulting Pty Ltd of Perth, Western Australia. Mr Zammit is a member of The Australasian Institute of Mining & Metallurgy and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves". Mr Zammit consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

DISCLAIMER

This announcement may contain certain forward-looking statements. The words 'anticipate', 'believe', 'expect', 'project', 'forecast', 'estimate', 'likely', 'intend', 'should', 'could', 'may', 'target', 'plan' and other similar expressions are intended to identify forward-looking statements. Indications of, and guidance on, future earnings and financial position and performance are also forward-looking statements.

Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of Medusa, and its officers, employees, agents and associates, that may cause actual results to differ materially from those expressed or implied in such statements.

Actual results, performance or outcomes may differ materially from any projections and forward-looking statements and the assumptions on which those assumptions are based.

You should not place undue reliance on forward-looking statements and neither Medusa nor any of its directors, employees, servants or agents assume any obligation to update such information.