TAMBO COAL & GAS PROSPECT

Lodestone is in the process of commencing a major exploration campaign within the Upper Surat Basin which is considered to host the Walloon Coal Measures.

The improving fundamentals of coal seam gas production in Queensland and the national move to use low carbon content primary energy sources have altered the economic landscape and warranted a renewed interest in the region.

MBA Petroleum Consultants (MBA) has been engaged as an independent expert to review the Upper-Surat CSG and Coal prospect. MBA is expected to release its report during Quarter 2 of 2009.

Lodestone anticipates that the Tambo prospect could become a source of supply of CSG for both export LNG plants and the domestic market. The strategic benefits of early cashflow from CSG revenues can provide earlier returns on the Company’s investment in the province, or be used to offset capital costs associated with future development of a large export thermal coal mining operation.

In a carbon-conscious world, such a coal operation may commence with carbon credits arising from the drainage of coal mine gas that would otherwise form part of fugutive emissions which are a source of greenhouse gases.

The company will also investigate commercial opportunities for use of associated water from CSG production. Such uses may include using water extracted from coal seams for coal washing, sewage treatment, agriculture, acquaculture and potable water. Although water from coal seams is brackish, it is relatively clean, having been carbon-filtered within coal seams over decades. Using locally-generated electricity, a reverse-osmosis desalination plant could be included to treat water for domestic, industrial and agricultural use.

Accordingly, the possible scale and scope of the Tambo Coal & Gas project is likely to present significant efficiency benefits and economies of scope.

Tenure Details

The prospect area consists of the following tenement holdings:

• EPP 1020 held by Tambo Coal & Gas Pty Ltd (formerly Galilee Coal Pty Ltd) where a Lodestone subsidiary has farmed-in to earn 50% subject to shareholder approval;
• EPC applications 1414-15, 1417-18, 1481-2, 1484 held by Tambo Coal & Gas Pty Ltd (formerly Galilee Coal Pty Ltd) where a Lodestone subsidiary has farmed-in to earn 50% subject to shareholder approval; and
• EPC applications 1621-7 held jointly by Tambo Coal & Gas Pty Ltd and Lodestone Exploration Limited.

EPP 1020 is in the final stages of being granted as ATP 1020 and offers for the EPC applications have commenced.