Middle Island Resources : Sandstone Gold Project WA Update

SANDSTONE GOLD PROJECT (WA)

In light of the Company's temporary deferral of re-commissioning its 600,000tpa gold processing plant at Sandstone, MDI's priority is now firmly on the identification of suitable, additional mill feed to enhance the gold production profile, with a focus on higher grade open pit deposits.

A more comprehensive assessment of prospects within MDI's 100%-owned Mining Leases will be the primary focus, but the strategy includes assessment of proximal third-party exploration and toll- milling/production sharing opportunities. The strategy includes several key elements as follows:-

1. Brownfields Targets - Continued exploration and conceptual studies on the deeper, high grade, Two Mile Hill BIF underground targets that include true width intercepts of 22m at 23.8g/t, 8m at 56.0g/t and 5m at 26.5g/t Au. Following the successful $150,000 EIS grant for co-funded drilling on this target (ASX Release 15 December 2016), it is planned to commence the next phase of diamond drilling in the March quarter of 2017, dependent on access to adequate funding.

2. Greenfields Targets - The Macintyre, Shillington West and Turley prospects will be initially assessed, however further opportunities are being progressively evaluated.

3. Targeting Study - A 'weights of evidence' targeting study will commence late in January 2017. This study will be undertaken by Dr Brett Davis from Orefind Pty Ltd, and is designed to identify and prioritise all exploration targets within the Sandstone Project.

4. Third-Party Opportunities - A review of all third-party exploration and toll milling opportunities within the wider Sandstone area is in progress. Discussions and data reviews have commenced on several initial opportunities.

Mineral Resources (2004 JORC Code) associated with deeper elements of the Two Mile Hill tonalite (below those recently up-graded for the purposes of pit optimisation) and adjacent high grade, BIF- hosted mineralisation will be re-estimated during the March quarter in compliance with the 2012 JORC Code guidelines.

Subsequent to the resource update, an underground mining concept study will be undertaken.

A deep diamond drilling programme (notionally 3 x 500m holes) is planned to confirm and assess deeper units of the Shillington BIF package along the eastern margin of the Two Mile Hill tonalite. The programme is designed to assess all three identified and interpreted BIF units in each hole. The holes also have the potential to intersect the Shillington Thrust, below the BIF package. Both of these objectives represent compelling exploration targets that have attracted $150,000 in WA Government co- funding under the Exploration Incentive Scheme (EIS).

The programme is planned to commence late in the March quarter, however drilling will only proceed once findings of the Targeting Study are assessed and adequate funding is available.

The Macintyre, Shillington West and Turley prospects have been identified as initial drill targets. POWs for these programmes were completed and lodged with the DMP late in December 2016 (Figure 1).

Figure 1

Assuming timely DMP approvals, it is planned to commence these programmes in February, which will entail the following:-

Macintyre Prospect

The Macintyre Prospect (incorporating the former Mt Klemptz/Ridge Prospect) comprises an extensive, high tenor, gold soil anomaly associated with structurally disrupted, sub-horizontal BIF horizons immediately overlying the Shillington Thrust to the southeast of the Shillington deposit. Previous limited RAB and RC drilling at the Macintyre Prospect generated intercepts of 30m at 1.84g/t Au from 21m depth in MKL017, 27m at 1.36g/t Au from 55m depth in TRC570, 16m at 2.42g/t Au from 51m depth in NGR5176 and 26m at 1.68g/t Au from surface in TRC554.

Initial RC drilling, comprising 42 holes for 2,600 metres, is designed to extend the previously identified mineralisation in two adjacent areas, initially on a 40m x 40m pattern that can be readily infilled as results justify (Figure 2).

Figure 2

Shillington West Prospect

The Shillington West Prospect comprises a broad, cohesive, gold soil anomaly that coincides with a zone of apparent magnetite destruction where an element of Shillington Thrust is interpreted to traverse the prospective Shillington BIF package to the west of the Shillington deposit. No mineralisation has previously been identified at the prospect. A solitary existing traverse of shallow RAB holes does not adequately assess the target, as the traverse is interpreted to have been drilled in a sub-optimal orientation, below the position of both the Shillington Thrust and mineralised BIF package.