Operations

• Operations at the Woods Point Gold Project continued with underground exploration and development at the Morning Star mine.

• During the year, Morning Star was granted five (5) new mining licences and commenced working on its Woods Point + Matlock goldfield exploration plan.

• The year saw a 2-month disruption to activities due to intense bushfires in the immediate area. The backup power supply had to be substantially increased due to a loss of the state

electricity grid over a number of weeks.No damage was reported at the actual Morning Star mine site.

• Prior to the year-end, the Company had placed deposits to purchase 3 diamond- drilling

rigs (1 surface and two underground) and subsequent to year-end, the first rig had arrived.

• Morning Star has developed a larger regional focus within the Woods Point Gold Project and prior to year end had commenced preparations of work plans to carry out drilling on all 8 granted Mining Licences in 2007-08. The Company had also prepared submissions for an extension to its Exploration Licence Application areas (ELAs), through application for newly released holdings from the Department of Primary Industries.

• A final ‘ILUA’ agreement with the local Native Title Claimants was struck at year-end.

Detailed Description of Activities

Underground Mine Development
The period saw the dewatering and complete reconstruction of the Morning Star Mine’s main shaft progress 70 metres to reach -286m below surface (RL1440m) and the connection through to the historical No. 9 Level at the -279 m depth (RL 1447m).

Mine Access and Shaft Reconstruction is planned for completion at ~305m depth with a sump construction beneath the No. 10 Level plat. This will allow for planned Underground Diamond Drilling of the ‘Gap Zone’, commencing from both the Nos. 9 and 10 Levels in the next quarters, utilizing the shaft crew to prepare drill cuddies and to be multiskilled as drillers.

At the end of the period, a groundwater pump station was being constructed on the No. 9 Level. The pumping arrangement then will be from the 10L sump up to the 9L pump station, then up to the 5L station and then to surface.

The period also saw the accessing of Levels No. 7, 8 and 9. and surveying + sampling of levels No. 5, 6, 7, 8, and 9. Winzing operations from No. 7 Level to intersect the Whitelaw’s Reef were completed. This area between the No.7 and No. 9 Levels (No. 7 SubLevel) was the vicinity of where mining ceased after the 1939 fires. This area will be made available for survey and sampling, shortly after the close of the year.

Ventilation has continued within the mine, with fresh air downcast via the main shaft and the expired air being upcast through the stopes to surface. Ongoing atmospheric monitoring is maintained and all mine openings are ventilated and checked prior to entry. The mine is found to have satisfactory natural airflow and no large diesel equipment is in operation to impair this.

At the end of the period, the first two of several partially developed but un-mined areas were being prepared to undertake bulk sampling programmes of exposed and intact ore material contained in mineralized structures to perform metallurgical test work.

Underground Exploration
The period saw the completion of the access development, surveying and sampling to the No. 5, 6, 7 and 8 Levels. These areas exposed significant mineralized quartz structures.

Access was gained into the high-grade zones of the Burns, Campbell’s and Whitelaw’s zones where the production history of the Burns and Whitelaw’s was estimated to average over 40g/t gold, in the years between 1934 and 1939 (for approximately 66,000 ounces). Intact faces were exposed with grades exceeding 300g/t Au and the presence of visible gold.

Trial Mining Study – Bulk Metallurgical Sampling
A program was designed and commenced to test Morning Star ore- grade material for two key indicators: ROM metallurgical recovery and grade factoring analysis.

To establish ROM material, two bulk samples representative of high- grade laminated quartz vein ore versus stockwork/breccia vein ore will be collected and processed in a certified NATA metallurgical testing facility to ascertain the type, size and nature of gold distribution, along with the identification of suitable methods for recovery and anticipated rates.

It was decided that two areas representing these different styles of mineralization would be:

(1) A leading face on Burns Reef at the No. 6 Level (representing laminated quartz vein ore) and

(2) On Whitelaw’s Reef below the No. 7 Sublevel (representing stockwork/breccia vein ore). These locations were selected because they were representative of intact future material yet to be mined.

Bulk Sampling and metwork on both of these reefs was scheduled to commence after the end of the annual reporting period.

Owner – Operator Drilling Fleet
It has become evident to Morning Star, that to achieve the desired scheduling of exploration drilling at a reasonable cost, it was necessary to invest in drilling equipment and training of its workforce (lack of availability of drilling contractors had seen substantial rate increases and booking delays of 12 months).

At year-end, the Company had placed deposits to purchase 3 diamond-drilling rigs – one skid-mounted surface rig, one electric-hydraulic underground rig, and one pneumatic underground rig.

Subsequent to the end of the quarter, the surface rig had been delivered to site and one of the underground rigs was scheduled for delivery in the September quarter and will operate initially from No. 9 Level underground.

An intensive survey and mapping program is being carried out to commence planning of surface and underground drilling. Drill pads for the first 5 surface drill holes are in place.

Preliminary Results – Resource Model
The geological depth/strike model proposed targets of greater than 4 – 5 Million ounces of gold. To test this model, a decision was made to invest in underground drilling and as mentioned earlier deposits were placed on 3 diamond drill rigs.

This initial campaign targeted repetitions of ladder vein / stockwork systems between the 200 – 600m depth of the Morning Star mine (‘Gap Zone’).

From the historical mine levels between 210m and 300m, underground drilling platforms will be utilised to test the Gap Zone. Each hole will have multiple targets down to the 600m depth, including extensions of the strike of known lines of lode that were intensely mined in the near surface zones (above the 200m depth) and below the Gap Zone (500 – 700m depth).

4 deep drill holes intersecting this area were completed in 2005, which showed a repetition and extension of known reef structures (and some new ones). There were more than 10 reefs identified with coarse visible gold in intersections.

All of these targets could validate the geological and mineralisation models and have the opportunity to significantly increase global resource potential of the project by increasing the size and frequency of the extension on both known and new host structures.

It is expected that subsequent to the end of this reporting period, the first underground drill rig will arrive into Australia and would be immediately prepared for use underground at the Morning Star gold mine in September 2007.

Regional Exploration Program – Expanded Woods Point Gold Project
A variety of historical gold mines, mineralisation styles and potential exploration targets were identified for priority exploration activities on Morning Star’s expanded regional tenements.

Inspection of and access on 3 of these dykes, ‘Little Comet’, ‘Comet’ and ‘All Nations’ was continued during the June quarter and the ‘Loch Fyne’ mine was commenced at the end of the quarter.

These areas represent historical production of approximately 400,000 ounces gold mostly from shallow workings above the water table.

A computer resource geological team was added to the Woods Point Project and 3D modeling of the regional dykes and mine workings was commenced during the quarter.

The team identified other regional dyke and magnetic anomaly targets which led to the Company deciding to expand its tenement holdings position via a large Exploration Licence Application (ELA) and several Mining Licence Applications (MINAs). Morning Star was also in talks on acquiring another famous historical cluster of mines contained in one Mining Licence just north of it’s Woods Point hub.

Planning is underway to select optimal surface exploration targets to plan for regional drilling in the near future. This will immediately follow completion of the current surface diamond-drilling program at the ‘Morning Star South’ dyke, which commenced late in the period.

Works at Morning Star mine site
The challenges and repercussions of the December – January bushfires impacted with 2 months lost productivity and the requirement for Morning Star Gold to upgrade the backup power supply to a production level (rather than a support level).

The Company is continuing to develop its Bushfire Management Plan in co-operation with the CFA Victoria to allow for the development of a safer perimeter zone to the mine site and western side of the Township of Woods Point. This will be submitted as an amendment to the project Work Plan in the near future.

With the expansion in the delivered electrical supply and the new pneumatic diamond drill rigs for the underground operations, the decision was made to source an electrical powered compressed air system. The process of the upgrade in the compressed air delivery will be undertaken early in the September 2007 quarter.

Personnel
During the period, works included shaft/winze operations, site infrastructure team operations, and surveying & sampling teams operations. Total personnel and contractors totaled up to 19 persons over the period.

The apprenticeship program has been expanded to train up local drilling staff and a database entry assistant. Residents of the local community are filling positions currently.

New Tenement Applications
During the year Mining Licences (MIN’s) 5233, 5234, 5240, 5241, and 5242 were granted.

Surveying of roads and old mine workings was carried out on all of the new tenements for the purpose of developing work plans for 2007-08.

The Gunai / Kurnai Native Title Claimant Group and Morning Star Gold N.L. have exchanged final ILUA contracts. The final contract was to be presented to the Gunai / Kurnai management committee for endorsement & execution on the 17th August 2007.

Late in the annual period, applications for new exploration and mining tenements were being prepared for submission over areas being released out of the moratorium program run by the Department of Primary Industries, Victoria.

These new applications will allow for the amalgamation and consolidation of existing Woods Point based projects and an extension of the existing program into new areas
immediately north and west of Morning Star’s existing tenements.

The information contained in this report was compiled by Morrie D. Goodz who is a Corporate Member of the Australasian Institute of Mining and Metallurgy, and has twenty-two years of relevant experience in relation to the mineralisation being reported on, to qualify as a Competent Person as defined in the 2004 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr. Goodz is a fulltime consultant with Goodz & Associates GMC Pty Ltd. Mr. Goodz consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

Morrie Goodz
M AusIMM, M CanIMM, MBA, Cert.
Mine Manager
27th July 2007

Schedule of Mining Titles
At end of August, 2007