The Badu Gold Project - Guangxi Province:

                                                           Drilling Commenced July, 2004

Terms

Blackwatch has signed a LOI with the Guangxi Tianlin Gaolong Gold Mine Ltd Co (�GTGGML�). Under the terms of the LOI, Blackwatch can earn an 81% equity stake in the Gaolong and Badu gold projects, as well as a further 300 square kilometres of promising exploration ground in the �Golden Triangle� area of northwest Guangxi.

Under the terms of the LOI, Caledon has the right to earn a 81% equity stake in the combined mining and exploration project through the expenditure of US$1 million on exploration over a three year period and by completing staged payments totalling US$350,000 over the same time frame. In addition, upon Caledon�s decision to initiate commercial production on any ore-bodies discovered within the JV tenements, Caledon must make a final cash payment of US$5 million to the project partners.

Geology

Small scale mining is also in progress at the Badu Mine, situated 12 km NE of the Gaolong mine. The Badu mining and exploration tenements are included within the Gaolong master agreement.  The GTGGML�s open-pit mining operations at Badu can be traced in a semi-continuous manner for over four kilometres along strike, with mining widths averaging 20 to 40 m. Gold is recovered in the heap leaching of oxide ores, with average head grades of 1 to 2 g/t gold.

Though mineralisation controls are not completely understood, gold mineralisation at Badu is currently being mined from a series of flat-lying to gently dipping sediments situated at the Permian/Triassic contact. Reports from the Chinese miners have indicated that gold is found both in the quartz veins and as disseminations within the wall rock. Reconnaissance grab samples collected by Caledon�s geologists within the sedimentary wall rock, within more carbonaceous, arsenopyrite-rich sections of the ore zones have assayed in excess of 5 g/t gold.

Summary Surface Results