Managing Directors Report

Dear Fellow Shareholders,

I am delighted to speak to you as Morning Star Gold’s recently appointed Managing Director for the first time.

I have joined the Board this past year with the Company’s fortunes rapidly on the increase and for that I’m particularly grateful to Malcolm Bird and Max Garling, who have been involved with MCO for many years as executive directors. It has been their vision to create a high-class gold resource definition project in Victoria’s historic eastern goldfields. That vision is now rapidly developing after many years consistent effort.

I am not a geologist or a mining engineer. Rather my background is in law, financial markets and investment banking. I have however been associated with mining ventures for much of my adult life. My father, Morning Star’s Chairman Max Garling has been involved in gold mining projects for over 35 years. I have been closely associated with several of these projects since the last mining boom in the early 1980’s and grown up with ‘the gold bug’ so to speak.

Morning Star is experiencing several exciting developments right now. Firstly though, let’s look quickly at a few reasons why we believe the Woods Point Gold Project is so interesting.

Production History
The Morning Star mine produced up to a million ounces of gold at grades approaching an ounce per tonne over 100 years of mining. Morning Star’s surrounding tenements were equally rich, and the Woods Point dyke swarm is known to have historical production of at least 1.8 million ounces of gold.

Mining Records
The last major operator of the Morning Star mine was Gold Mines of Australia (WMC). Their exploration, production and development records were fastidious and vast. Morning Star has over 45,000 pages of historical data on the Morning Star mine and surrounding dykes. This data is constantly accessed and cross-referenced against our current exploration programs and is proving hugely accurate and valuable in assisting with the project.

People
Morning Star’s current management team is probably the most experienced group of gold prospectors in terms of eastern Victoria that has ever been assembled. Max Garling & Mal Bird I’ve already mentioned – both have been heavily involved in Victorian gold and Lachlan Fold Belt tenements since the late 1960’s. Jeff Williams is a mining engineer and Victorian native with a keen interest in hard rock gold production. Dr. Peter Jackson our Chief Geologist has done scores of economic geological studies on Victorian gold deposits and has crawled through just about every old adit and mine shaft in eastern Victoria. Morrie Goodz our Technical Director is a geologist and mine manager with years of hands on experience at the A1 Mine in nearby Gaffney’s Creek and involvement in the Morning Star mine for over 15 years. Ray Wright our current mine manager also managed the A1 mine and the successful Wattle Gully gold mine in Victoria.

Morning Star’s Tenements
We have assembled current Mining Titles over the bulk of the rich production mines and dykes in eastern Victoria. Excluding the Long Tunnel Mine in Walhalla which is now a tourist attraction, Morning Star controls the majority of the historically rich production ground in the Woods Point dyke swarm along 3 major fault zones running to the north-west from Matlock and Woods Point.

Price of Gold
We are strong believers in the continued long term strengthening in the gold price, which is why last year, we divested ourselves of all other non-core tenements and projects to focus on building a high grade, low cost gold resource project in Victoria’s historically rich eastern goldfields.

Now I’d like to update you on Morning Star’s recent achievements.

Morning Star Mine Rehabilitation
Refurbishment of the Morning Star mine is complete. The mine has been totally rehabilitated and rebuilt from surface infrastructures to beneath Level 10 (~310m underground). The mine rehabilitation program has been ongoing since 1994 and the company has spent over $9mm towards this goal. The benefit of the refurbishment is to provide access to the entire old shaft and drives above 10L (many of which were only partially developed and stoped), and also to allow access to several key drill targets within the ‘Gap Zone’ (an area of the mine up to 600m in vertical depth, where little or no production took place historically).

Quartz Reef Sampling
Morning Star’s intention has been to systematically sample every accessible level of the mine, particularly where WMC records indicate high-grade historical drill intercepts or sampling and intact ore blocks. To date over 200 samples collected have averaged around 70 grams per tonne gold. The latest sampling carried out on the 7 Sub- Level of the mine indicates high-grade gold in a large mineralized block of ore in area of no historic production. Resource definition in this area will be the initial target of the ‘Gap Zone’ diamond-drilling program, which is underway.

Bulk Metallurgical Testing
Morning Star has taken three of six planned bulk samples from within the mine over the past quarter. The aim of these trial mining samples is to firstly test head grades within areas of indicated intact ore blocks within the mine and secondly to test gold recovery rates from these areas. The results so far are extremely encouraging showing strong head grades between 27g p/t and 35g p/t gold but more crucially that gravity extraction rates were very high indicating up to 93% at 150microns. Recovery over 99% was indicated after minimal leaching (0-4 hours). Work on a very coarse 250micron crush gave gravity extraction rates up to 88% and recovery up to 98% after 8 hours of leaching. This is significant because the construction and operation of a 250micron mill would incur substantially lower costs than the industry average.

Owner Operated Drilling
The company has taken delivery of the first 3 of 4 diamond drills purchased outright to undertake owner operated drilling at the Woods Point Gold Project.

R esource Drilling (Underground)
An underground diamond-drilling program initially over 3400m is underway, targeting resource definition within the ‘Gap Zone’. This is an area of at least 65 million tonnes of dyke material that was largely undeveloped by GMA (WMC). As mentioned above, the initial targets will include ore blocks indicated between the 7 Sub-Level and the 9 Level of the Morning Star mine. Recent channel samples indicated very promising grades from the 7 Sub-Level.

Resource Drilling (Surface)
The Morning Star South surface diamond-drilling program continues on an area just to the south of the known limits of the Morning Star dyke, to test a theory that the Morning Star dyke may bulge further than the known underground limits of the mine. Hole No. 1 (MS366) intersected dyke at surface and at 71m underground and was completed at 151m. Hole No. 2 (MS367) has likewise indicated several auriferous style alteration and quartz filled shear zones. MS367 has intersected a 20m band of dyke & quartz reefs from the 90m depth. MS367 is continuing. The Morning Star South program will continue for up to 5 holes and 2200m and will define a very strong picture of a previously untested southern zone including already 2 new dyke extensions to the south of Morning Star Creek (around 400m from the Morning Star mine site).

Tenement Expansion
Morning Star has significantly expanded its tenement position around Woods Point recently from around 20 km2 to 220 km2. Our ultimate goal is to use the Morning Star mine site at Woods Point as a single hub processing facility, with several ore sources from nearby tenements. MCO’s Regional Exploration Program is targeted to exploit these historically rich dykes proximate to the Morning Star mine.

Recent Mining Title expansion includes:
MIN 5480 – This MIN is less than 2km southeast of the Morning Star mine along the Ross Creek Shear Zone. It includes the Shamrock Mine and workings, which were historically noted to be rich in gold, copper, palladium and cobalt. It is very close to the rich Comet and Little Comet mines, along the same strike zone.

MIN 5481 – This MIN is 2km to the west of the Morning Star mine along the Tingha shear zone and contains the renowned Tingha and Waverly Mines. These mines historically yielded over 40,000 ounces of gold in very shallow workings. This tenement is particularly interesting as historical records indicate the dyke outcropping over 3kms in length and although narrow at around 2-5m in width, untested at all but shallow depths.

MIN 5299 – This MIN is around 8kms to the northwest of the Morning Star mine along the Ross Creek strike line, near to Gaffney’s Creek and contains the notable Rose of Denmark, Hunts and Dempsey Mines. These mines historically yielded at least 90,000 ounces of gold from shallow workings.

ELA 5079 – Morning Star Gold recently received priority over other applicants for this large exploration area, which covers much of the historically rich ground moving northwest from Woods Point. The ELA is over 200km2 and significantly expands MCO’s footprint up along the three notable historically mineralised shear zones proximal to the Morning Star mine.

Morning Star has already commenced significant mapping and survey work on additional key proximal targets, which together produced more than 400,000 ounces of gold mostly from shallow workings. These priority targets include mines and dykes such as the ‘All Nations’ (132,000 ounces production), the ‘Comet’ (64,000 ounces), and the ‘Loch Fyne’ (109,000 ounces). MCO plans to test the depth of these dykes and the presence of deeper quartz reefs through deep diamond drilling through its Regional Exploration Program.

Native Title
Morning Star has recently signed final Indigenous Land Use Agreements (ILUAs) with the two relevant Indigenous groups covering its entire tenement package around Woods Point. This sees the clearing of a formerly significant impediment to further exploration and mining development on the company’s mining titles.

In conclusion, Morning Star has had a hugely productive year and it looks like a very exciting year ahead full of exploration promise. I look forward to reporting an active gold exploration program over the coming year.

Sincerely
Nicholas Garling
Managing Director / CEO