Gold Mines of Sardinia Limited

A.C.N. 009 234 851


Dear Shareholder

In a year of continued negative market sentiment, Gold Mines of Sardinia remained on course in its exploration and development of Sardinia as a major European gold province.

Operating subsidiary Sardinia Gold Mining SpA recorded some impressive exploration successes, at our existing mine complex at Furtei and in new areas at Monte Ollasteddu and near Cuglieri.

The company began construction of the sulphide processing project at Furtei and took planning for the trial mine at Osilo to an advanced stage.

Gold sales realised an average US$285 an ounce, compared with a cash operating cost of $US157 an ounce. GMS ended 2000 with more than $A22 million in the treasury, consisting of cash, grants and marketable securities.

Furtei exploration has enabled mining of oxide ores to continue at least until the end of 2001, more than two years beyond the limit estimated in the project’s original feasibility studies. At the same time, the sulphide resource has been extended, assuring ore supply to the new plant.

As expected, because of the declining oxide resource, gold production, at 26,335 ounces, and revenue, at $US7.56 million, were both down from the previous year. However, production is continuing in 2001 at above-budget levels and at a cost providing a healthy margin over depressed gold prices.

New resource estimates for both Furtei and Osilo are encouraging. Results show a combined 1 million ounces of contained gold - 632,000 ounces at Furtei and 376,000 ounces at Osilo. The estimates also include 15,000 tonnes of copper at Furtei and 1.58 million ounces of silver at Osilo.

We are confident that, as exploration proceeds - especially at Osilo - these resources will be further extended. At Osilo, most of the 50 kilometres of mineralised structural corridors that host the epithermal quartz veins have not been drill-tested. New veins found include a high-grade structure at Sa Maddelena, which has potential for high grade shoot development.

Meanwhile, our exploration teams have discovered two new very promising areas - Monte Ollasteddu and Cuglieri - which, if they realise the potential indicated, could develop into the large-scale mining operations we have been seeking for some years now. The finds and the geology are discussed in detail in the Operations Report that follows.

Of course, it is early days yet. Much more needs to be done but Monte Ollasteddu, in particular, is looking good. This prospect is in the Eastern Paleozoics region that our geologists have always found interesting. The region has been mined for various metals for hundreds of years and its geology is similar to that of deposits through a wide area of Europe that total more than 18 million ounces of gold in past production and current reserves and resources.

At Cuglieri, a number of new sinters and veins have been discovered in an epithermal field similar in size to Osilo, the most promising being the silver-rich vein at Pedra Loabbia.

Exploration represents the future of the company and so we are pleased that Homestake Mining, with which we agreed a strategic alliance during 2000, has deployed an experienced epithermal geologist in Sardinia. Your Board believes the alliance with Homestake, one of the world’s leading names in gold mining, will be greatly significant for the development of GMS.

The alliance with Homestake has also been fruitful for GMS in respect of the 10 per cent shareholding in Navan Mining that GMS acquired in the transaction. GMS acquired this stake in 2000 at an effective price of 54 pence a share. We sold one million Navan shares on 13 March 2001 for £980,000 (about A$2.8 million), however, we retain an 8.1 per cent stake, valued at time of writing at about £4.7 million (A$13.4 million).

Navan has recently announced the discovery of what appears to be a potentially large, high-grade gold discovery at Krumovgrad in Bulgaria and we await the results of further early stage work at the site with interest. GMS has no current intention of selling further Navan shares.

I should like to express the Board's thanks to Mr Peter Newton who served as a director of the Company from 1994 until he stepped down in May 2000. His valuable contribution to the Company during this period was very much appreciated.

I should like to take this opportunity to thank my predecessor, Mr Peter Hambro, for his work at GMS, which included conclusion of the Homestake alliance. Peter and fellow director Mr Rudolph Agnew decided late in the year to resign from the Board.

Mr Vittorio Gori also resigned from the GMS Board but continues as a director of SGM. His experience and commitment are highly valued and I look forward to continuing work with him in Sardinia.

As 2001 advances, I am strongly convinced that our Company has a promising future. We have attractive new developments in train but even more importantly some exciting new gold discoveries, albeit at a relatively early stage, with which to work.

During 2001 the migration of the domicile of the Company from the Australian Stock Exchange to London should be completed, reflecting the location of our main shareholders.

I look forward to Gold Mines of Sardinia realising its potential, both on the ground and in the stock markets.

Jon Pither

30 March 2001

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Last modified: April 03, 2001