Terms

Blackwatch has signed a Letter of Intent (�LOI�) with the Mojiang Mining Limited Company (�MMLC�). Under the terms of the LOI, Blackwatch can earn a 70% equity stake in the Mojiang mine concession (7.2 km2) and new tenements within Mojiang County, as well as a 90% interest on exploration ground to be acquired in defined counties in southern Yunnan Province

Under the terms of the LOI, Caledon has the right to earn a 70% equity stake in the combined mining and exploration projects through the expenditure of US$1 million on exploration over a 3- year period and completion of a feasibility study. Under the terms of the agreement, MMLC has a 30% interest, of which 15% is carried to the commencement of production and 15% is participating in any future development and production scenario. The project will be funded 100% by Caledon during the exploration phase.

Geology and Immediate Exploration Potential

The Mojiang project and mine site area is situated 240kms SW of Kunming the capital of Yunnan in south-western Yunnan. Mojiang can be easily accessed via a new major highway from Kunming, approximately four hours drive. The main target area is the Mojiang mine, an active gold mine producing gold from a number of small open-pit and underground operations, with remaining gold reserves of approximately 250,000 ozs. Mojiang has produced approximately 600,000 ounces over the last ten years. The mineralisation at Mojiang is hosted in a series of moderately dipping veins, displaying classic colloform and �crack-seal� banded textures. Individual veins, averaging up to 12 metres wide, have been shown to host grades in excess of 15 g/t. Individual veins sometimes exhibit �bonanza� grades (in-excess of 30 g/t gold), typical of such systems. The veins are hosted in sediments and acid volcanics, near the contact between thrusted Cambrian sediments and metamorphosed ultra-mafic volcanics belonging to a regional scale ophiolite complex, within the Red River Suture Zone. Nickel ore is also being actively mined in the district, some of which is being mined within the Mojiang tenement itself. Examples of diamond drill intercepts at Mojiang from the earlier Chinese work include:

                            Section 50               DDHZ50-6                    41.62m @ 3.34 g/t

                            Section 51               DDHZ51-16                  28.22m @ 4.89 g/t

                            Section 52               DDHZ52-10                  53.98m @ 2.72 g/t

                                                            DDHZ94-3                    3.15m @ 2.46 g/t

Caledon plans to initially explore the immediate extensions of the epithermal vein zones and feeder structures.

Regional Exploration Potential

The Mojiang �trend� is represented by a series of lineaments aligned parallel to the western flank of the regional rift system. Within the trend, Caledon has noted an abundance of gold showings and surface gold workings within several tens of kilometers from the Mojiang mine itself. Future exploration by Caledon will also be targeting such anomalies.