Mr. Tim Goyder reports

CHALICE AND RED HILL TO EXPLORE HIGHLY PROSPECTIVE WA GOLD EXPLORATION OPPORTUNITY THROUGH FARM-IN AGREEMENT OVER WEST PILBARA GOLD PROJECT

Chalice Gold Mines Ltd. and Red Hill Iron Ltd. have entered into a binding heads of agreement allowing Chalice to farm in to all minerals other than iron ore within Red Hill's West Pilbara gold project.

Chalice can earn up to a 70-per-cent interest in the West Pilbara project by financing $3-million (Australian) worth of exploration with a minimum commitment of $500,000 (Australian) within the first 12 months. Chalice may spend $1-million (Australian) within two years (including the minimum commitment) to earn 51 per cent at which point Red Hill will have a one-off election to contribute to its 49-per-cent pro rata interest. If Red Hill elects not to contribute, Chalice may then spend another $2-million (Australian) to earn a further 19 per cent within no set time period, or withdraw and retain no interest.

This opens up an exciting new gold and base metal exploration opportunity for Chalice and Red Hill in the highly prospective Ashburton mineral field in Western Australia's Pilbara region, which is significantly underexplored for gold and base metals.

The project area, covering 1,390 square kilometres, is located approximately 160 km south-southwest of Karratha, and extends almost continuously about 90 km north from the northern margin of the Wyloo dome, an important regional geological feature which hosts the Paulsens gold deposit located eight km southwest of the southern extent of the project (owned and operated by Northern Star Resources).

Of a number of prospects identified by Red Hill which require further exploration, Derek's Bore and Urandy are the most advanced with Red Hill completing widely spaced follow-up reverse circulation drilling at both prospects.

At the Urandy prospect, RC drilling returned a best intercept of nine metres at 4.52 grams per tonne gold from 46 m in drill hole RCW007 and nine m at 1.79 g/t Au from 14 m in drill hole RCW006, the updip projection of the RCW007 mineralized zone. Drill sections 50 m to the north and south of drill holes RCW006 and 007 returned intercepts of five m at 0.2 g/t Au from 14 m (RCW005) and four m at 0.8 g/t Au from 41 m (RCW009), respectively.

RC drilling has defined the mineralized zone over 100 metres to date with surface mapping identifying the extent of silicification to over one km.

Drilling at Derek's Bore returned broad low-grade gold intersections associated with strong silica plus or minus minor sulphide alteration within carbonaceous sediments in close proximity to the north-northwest-trending Bitherabooga shear zone. The intersections require further work.

Planned exploration

Chalice plans to commence an immediate review of all data and undertake a field review of the identified targets. Mapping and drill programs will follow the review at the earliest opportunity. The Urandy prospects will be prioritized for follow-up RC drilling.

Farm-in agreement terms

Chalice and Red Hill have entered into a binding heads of agreement, which will be fully documented in a formal farm-in agreement. Key terms agreed are listed below:

• Chalice will spend $1-million (Australian) in the first 24 months from commencement to earn 51 per cent.
• Chalice must spend a minimum of $500,000 (Australian) within the first 12 months prior to withdrawal.
• Chalice must notify Red Hill once the first earn-in expenditure has been satisfied of its election to increase its interest at which time Red Hill has 14 days or such shorter period to notify Chalice that Red Hill wishes to maintain its interest at 49 per cent by proportionally contributing to all future expenditures.
• If Red Hill does not elect to maintain its interest, Chalice may expend a further $2-million (Australian) with no set time period to increase its interest to 70 per cent, or withdraw with no interest. Minimum annual expenditures by Chalice during this stage must exceed $1-million (Australian).
• Once Chalice has earned its 70-per-cent interest, both parties will contribute proportionally to all expenditures.
• The project area is also subject to an iron ore joint venture with API Management Pty. Ltd. which is responsible for maintaining all the tenements in good standing.

Sampling techniques -- reverse circulation drilling

Drill samples were collected by employees and direct contractors of Red Hill Iron Ltd. Sample collection from reverse circulation (RC) drill holes was undertaken using industry-standard practices. Holes were drilled with a 5-1/4th-inch face sampling percussion drill hammer. All material, representing each one-metre drill interval, weighing approximately 25 to 40 kilograms (depending of rock type and weathering intensity), is presented as crushed/pulverized rock with the majority (greater than 90 per cent) of the material returned being less than one millimetre in size. All material from each interval was passed through a three-tier riffle splitter to produce a subsample for analysis. Each sample represented approximately 12 per cent by volume of the drill interval with the average weight of each sample being 2.5 to four kg per one-metre interval. Samples were transported within tagged bags and chain-of-custody documentation directly from site to Genalysis Laboratory Services (accredited laboratory) in Perth, Western Australia. Drill holes were logged consistent with sample intervals recording sample recovery, lithology and mineralization. Quality assurance/quality control protocols were adopted throughout the drilling campaign with laboratory reference standards, duplicate and blank samples inserted every 20 samples. Gold and multielement analysis by 50-gram fire assay/atomic absorption finish gold analysis and multielements by acid digest inductively coupled plasma optical emission spectroscopy analysis by Genalysis Laboratory Services (accredited laboratory).

Competent persons and qualifying persons statement

The information in this report that relates to exploration results in relation to the West Pilbara gold project is based on information compiled by Dr. Kevin Frost, BSc (honours), PhD, who is a member of the Australian Institute of Geoscientists. Dr. Frost is a full-time employee of the company and has sufficient experience in the field of activity being reported to qualify as a competent person as defined in the 2012 edition of the Australasian Code for Reporting of Exploration Results, Minerals Resources and Ore Reserves, and is a qualified person under National Instrument 43-101 -- standards of disclosure for mineral projects. The qualified person has verified the data disclosed in this release, including sampling, analytical and test data underlying the information contained in this release. Dr. Frost consents to the release of information in the form and context in which it appears here.

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