- Geothermal temperature data;

- 3D seismic data; and

- Well transmissivity estimates

Bertus de Graaf, managing director of Panax said that "indications are that, subject to the well productivity tests planned for next month, the Salamander-1 well remains a candidate for producing clean base-load power for thousands of homes in the region."

"The new results not only boosted the geothermal potential of the Penola Trough, but it also lifts the potential of the other three troughs of Panax’s larger Limestone Coast Project."

In a statement the company said well clean-up flows are continuing and further data will become available from the well productivity test planned for next month.

Temperature data

The recently announced 15.4°C increase in the measured bottom hole temperature (BHT) of the Salamander-1 well, from 156°C to 171.4°C, has confirmed predictions of the regional 3D temperature data by Hot Dry Rocks Pty Ltd (HDRPL).

The 3D modelled temperature at 4,025m for the Salamander-1 well of 172°C is very close to the recently measured BHT at 4,000m of 171.4°C. Projected temperatures at 4,000m increase to the south and south-east into Panax’s GEL484, reaching 180°C within 4km of Salamander-1.

De Graaf said the new BHT of Salamander-1 combined with the new 3D temperature data is likely to increase the geothermal resources of GEL223.

He said it upgrades the overall regional potential of the Penola Geothermal Project, with higher temperatures alleviating the pressure on high production rates."

3D seismic data

The South Australian Government Department of Primary Industries and Resources recently released the Nangwarry 3D seismic survey data for public use. This combined with the vertical seismic profile data acquired at the end of drilling Salamander-1, allows calibration of the well results with the existing 3D seismic data.

Interpretation has shown that a high reflectivity zone, which is interpreted to be associated with reservoir rocks drilled in Salamander-1, extends 6.5km to the south east, covering an area of approximately 12.5km2.

This zone is interpreted as having similar reservoir properties to Salamander-1 and coincides with the higher temperatures of 175°C to >180°C at 4,025m as mentioned above. This zone also demonstrates the potential extent of the reservoir zones intersected in Salamander-1.

A review of the wireline logging data of the open hole section of the Salamander-1 well (from 2,900m to 4,025m) for estimating the reservoir quality of the target reservoir rocks (the Pretty Hill Sandstone) has been completed by Down Under Geosolutions (“DUGEO”) based in Perth.

Well transmissivity estimates

Panax have been advised that the combination of the “Lin-Log and MDT methods” are the most appropriate to estimate the “transmissivities” of the intersected target reservoir rocks.

The new temperature-, seismic- and transmissivity data have boosted the overall potential of the Penola Geothermal Project. The regional setting and potential have been greatly enhanced, with higher temperatures coinciding with areas where the reservoir rocks identified in Salamander-1 are interpreted to be present.

As the demonstration plant comprises a production and an injection well, this leaves the option of drilling a production well in the hotter area, and thereby converting Salamander-1 into an injection well. Overall, it is too early for such decisions, the company said, but the opportunity for this has now been created.

The new temperature is significant as it is well above the projected temperature of 160°C and 15 degrees hotter than previously reported.

As importantly, increased geothermal temperatures in the target reservoir rocks "have a highly positive effect on the overall economics of the Penola Project."

The new bottom hole temperature was measured earlier today, managing director Bertus de Graaf said, during well logging, conducted as part of the well clean-up flow operations.

De Graaf said it was too early to draw any specific conclusions from the result.

The short flow reservoir test on 31 March achieved the first steam from a hot sedimentary aquifer in Australia.

A significant amount of steam was released after production flows to surface reached boiling point temperatures (100°C).

A bottom hole temperature of 156°C was recorded at 4,015m, with approximately 130°C being recorded at 3,000m (being the top of the approximately 1,000m thick target reservoir), which are both in line with earlier estimates.

The BHT is expected to increase further as the temperatures in the well have not yet fully recovered from the cooling action of the recently completed drilling.

The data collected during the short clean-up flow test will now be evaluated and interpreted in combination with the well log data (petrophysical logs) collected following completion of drilling in mid-March. According to plan, an extended flow test is scheduled to be carried out in mid-May, 2010.

Both tests were designed by SKM (New Zealand) and endorsed by GeothermEx (USA), to collect the necessary data required for the establishment of “geothermal reserves”.

At this stage, the company said, it is too early to draw any conclusions as to the quality of the reservoir but completion of the scheduled short flow test brings the Penola Project one further step closer to the establishment of Australia’s first geothermal reserves.

Drilling operations were terminated at 4,025m in the Pretty Hill Sandstones, which comprise the target reservoir.

In a statement, the company said this makes Salamander-1 one of the deepest wells drilled in the Otway Basin.

The 4,025m deep well was drilled in 44 days (including four rig repair days), using only six drill bits, significantly reducing drilling time.

The Salamander-1 well has set a new drilling record for the Australian geothermal sector.

Operations will now focus on logging the 1,125m long open hole section in the target reservoir rocks and the setting of the open hole, seven inch perforated liner.

This will be followed by the well testing programme.

During the week, the operator cased and cemented the 12.25 inch section of the hole (9 5/8 inch casing) and was drilling ahead on the 8.5 inch section of the hole, before the commencement of logging, and running of 7 inch perforated liner in the reservoir section of the hole.

Dr Bertus de Graaf, managing director of Panax said the drilling rig was meeting expectations and Salamander-1 is on track to "reach its targets and the advancement of geothermal energy as a major power source in Australia is on its way to becoming a reality.”

The well aims to onvert part of the Penola Geothermal Project’s “Measured Geothermal Resources” into “Geothermal Reserves” sufficient to commence the development of a 5.9 MW (net) plant.

The proximity of the project to the national electricity transmission grid, meant Panax had one of the few renewable energy projects in the country capable of powering thousands of homes without requiring costly new grid connections.

He said today, this meant Panax the closest to achieving commercialisation of base load geothermal energy.

The Penola Geothermal Project uses proven technology and is the first geothermal well in Australia to test a Hot Sedimentary Aquifer (HSA), which relies on extracting existing hot water from an existing aquifer or HSA reservoir.

By exploring exisiting reservoirs containing hot geothermal fluids, which has fewer risks than hot fractured rock geothermal projects, Panax's development time for the project is much shorter.

An independently reviewed pre-feasibility study has shown Panax’s Penola Project has the potential to generate cheap base-load, clean energy with the Company planning to have a demonstration power plant in operation by 2011, subject to results of Salamander-1.

Dr de Graaf said further expansion could lead to a geothermal power station more than ten times larger by 2014.

The Hon. Martin Ferguson, Minister for Resources, Energy and Tourism was at the Salamander-1 Well Site, where the Minister unveiled a plaque commemorating the pioneering status of the well.

Bertus de Graaf, managing director of Panax reported that the Penola Geothermal Project GEL 223 in Penola, South Australia was  drilling ahead on the 12.25 inch section of the hole. Casing was being run on the 12.25 inch section (9 5/8 inch casing) of the hole, prior to the casing having to be retrieved to the surface due to issues associated with circulation of the drilling fluids.

Before this was achieved, an electrical motor (one out of two) powering the main draw works of the contract rig ceased to operate.  A new motor was sourced by Weatherford ex Dubai and has been fitted.

Operations have recommenced.

Casing and cementing of the 12.25 inch section to be undertaken, are scheduled to take approximately 2 days.  This will be followed by commencement of drilling of the 8.5 inch section of the hole.

During week 2, the well reached a total depth of 2,866m - an addition of 1,100m from the week before.

Activities during the the Week was spent casing and cementing of the 17.5 inch section of the hole; preparing for drilling of the 12.25 inch section of the hole; and drilling ahead on the 12.25 inch section of the hole.

The company will now case and cement and cement the 12.25 inch section to be undertaken, scheduled to take approximately.

The well is part of the company's Penola Geothermal Project GEL 223 located in Penola, South Australia.

Total Depth at end of current week was 1,766 metres, representing 582 metres drilled for the week.

Panax was drilling ahead on the 17.5 inch section of the Salamander-1 well, interrupted by repairs to the top drive of the rig. Casing and cementing of the 17.5 inch section will commence shortly, which is scheduled to take approximately three days.

The eagerly awaited Salamander-1 is a pioneering well within the Australian geothermal sector. It is the first well to test a conventional geothermal resource, namely a Hot Sedimentary Aquifer (HSA).

Panax will release a weekly drilling progress to the market each Tuesday, starting on 9 February, 2010.

This style of Geothermal Resource relies on extracting existing hot water from an existing aquifer or HSA reservoir.

It has similarities to a water bore, but targeting geothermally heated hot water. Testing of the aquifer or reservoir can be carried out using only one well, again similar to tests used in water bores.

The advanced Penola Geothermal Project has an independently assessed “Measured Geothermal Resource”, of 11,000 PJ sufficient for generating 100’s of MW of zero emission power.

Panax's “measured resource” means that there is a higher degree of confidence regarding the geothermal temperature as well as regarding the quality of the target reservoir. This sets the Penola Project apart from all other known geothermal projects in Australia.

The Salamander-1 well is a production well designed with the aim to convert part of the “Measured Geothermal Resources” of the Penola Project into “Geothermal Reserves”.  This would then be sufficient for a decision to commence the development of a 5.9 MW net plant, gridconnected, commercial Demonstration Plant, within three months of completion of drilling.

Panax received a $7 million grant from the first round of the Commonwealth’s Geothermal Drilling Programme towards the cost of this well.

Panax has stated that the drilling of the Salamander-1 well is unlikely to suffer from major delays, as were experienced by other geothermal projects in Australia.

In a statement, the Queensland-based company says the last of the approximately 130 trailer loads will arrive at the Salamander-1 drilling site in Penola today.

Panax reported that each of the loads delivered to date have arrived safely and without incident at the Salamander-1 site.

The rigging up process is continuing, with the rig on schedule to spud later this month.

Detailed on-site safety presentations and meetings will be conducted at the Salamander-1 site during the coming week.

As previously advised, the mobilization process was delayed on 21 December 2009 as a result of adverse weather conditions in the proximity of the Paralana drilling site, where the WDI Lightning Rig # 828 is currently being de-mobilised.

Managing Director Bertus de Graaf said the adverse weather conditions rendered the roads impassable to transport trucks for a period of approximately 20 days, resulting in the inability of both Panax and WDI to transport critical components of the rig away from the Paralana site.

"These adverse weather conditions have now passed and road conditions have been restored to allow transportation to re-commence," Mr de Graaf said.

He said Panax formally advised WDI of the cessation of the Force Majeure event, which was invoked to minimize the company’s exposure to any unforeseen costs, with effect from 6.00 am this morning.

"Panax and WDI have continued to work together in a mutually co-operative way during the period of the Force Majeure event to ensure that as many activities as possible were able to be completed during this period," he said.

"Panax looks forward to the spudding of our Salamander-1 well later this month."

The applications under the oversubscribed SPP amounted to approximately $0.40 million or 10% over the maximum level set by the Company under the SPP rules.

The funds raised from the SPP will be used to fund the development of the Salamander-1 production well for the Penola Geothermal Project in the south east of South Australia, as well as for other Panax projects in Australia and internationally.

The merit of the Penola Project is verified by the occurrence of an independently assessed “Measured Geothermal Resource” estimated at 11,000 PJ of stored heat, potentially sufficient for generating hundreds of MW’s of power.

The Penola Measured Geothermal Resource is one of only three in occurrence in Australia, two of which are owned by Panax.

The Salamander-1 well is a production well designed with the aim to convert part of the “Geothermal Resources” of the Penola Project into Geothermal Reserves, which in turn will form the basis for the development of a commercial, grid connected Demonstration Plant, a first for Australia.

During the course of the past 8 months, Panax has been successful in gaining access to approximately $24.3 million in new and available funding, including a $7 million grant under Round 1 of the Australian Government’s Department of Resources, Energy, and Tourism’s Geothermal Drilling Program.

Over the same time period, Panax has grown its shareholder base from approximately 950 shareholders, to approximately 2,250 shareholders at the time of writing, an increase of approximately 140%, including 15 new institutional holders who have joined the register.

This morning, 11 loads had already left the site where the rig had been previously operating, bound for the Salamander-1 site, with the first loads to arrive tomorrow at Penola.

The merit of the Penola Project is verified by the occurrence of an independently assessed Measured Geothermal Resource estimated at 11,000 PJ of stored heat, sufficient for generating hundreds of MW’s of power.

The Penola Measured Geothermal Resource is one of only three in occurrence in Australia, two of which are owned by Panax.

The Salamander-1 well is a production well designed with the aim to convert part of the Geothermal Resources of the Penola Project into Geothermal Reserves, which in turn will form the basis for the development of a commercial, grid connected Demonstration Plant, a first for Australia.

It is unlikely that the drilling of the Salamander-1 well will suffer from major delays. Out of a total 28 petroleum wells drilled in the Penola Trough, 11 were deeper than 3,000m, averaging 3,240m. The average drilling time over these 11 wells to reach total depth equates to 28.3 days, whilst the deepest well in the Penola Trough reached TD of 3,499m in 24 days.

Salamander-1 is designed to reach a maximum depth of 4,000m, but may be pulled short following confirmation of the intersection of high porosity/permeability zones within the target reservoir.

Transport of the rig to Panax’s Penola site is expected to commence over the weekend, with the first transported loads expected to arrive at the Salamander-1 drill site by middle to end of next week.

Spudding of the Salamander-1 well is now expected to occur in the first half of January 2010.

Managing director Bertus de Graaf said "while the extended delays to the commencement of our drilling programme are disappointing, Panax says it is well prepared to commence transporting the rig to the Penola site, and all preparations have been completed for spudding the well".

The Salamander-1 well is a production well designed with the aim to convert part of the “Geothermal Resources” of the Penola Project into Geothermal Reserves, which in turn will form the basis for the development of a commercial, grid connected Demonstration Plant, a first for Australia.

It is unlikely that the drilling of the Salamander-1 well will suffer from major delays. Out of a total 28 petroleum wells drilled in the Penola Trough, 11 were deeper than 3,000m, averaging 3,240m.

The average drilling time over these 11 wells to reach total depth equates to 28.3 days, while the deepest well in the Penola Trough (Katnook-4) reached TD of 3,499m in 24 days. Salamander-1 is designed to reach a maximum depth of 4,000m, but may be pulled short following confirmation of the intersection of high porosity/permeability zones within the target reservoir.

Panax is planning to carry out geothermal exploration activities on its 100% owned GEL 281 licence area with a view to delineating geothermal reserves for the generation of saleable electricity.

Santos may consider purchasing competitively priced renewable energy for in-field electricalgeneration requirements for its operations in the Moomba region.

The Tirrawarra Geothermal Project is characterised by the existence of a “Measured Geothermal Resource” totalling 11,000 PJ – one of only three in Australia, and two of which are owned by Panax and a substantial Indicated Geothermal Resource, amounting to an estimated 30,000 PJ.

Panax has an extensive data base of information on its GEL 281 licence area, including logs of more than 100 petroleum wells as well as extensive 3D seismic cover.

Target temperatures are in the range of 155°C to 160°C, at depths of 2,750 metres to 3,500 metres.

The highest recorded downhole temperature in the tenement is 157°C at 2,919 metres. Panax has recently applied for a grant for an amount of up to $7 million under the Australian Government’s Department of Resources, Energy, and Tourism Geothermal Drilling Program.

Results of the application for this grant funding are expected to be known shortly.

This would be some some 120 days or four months later than originally estimated by Petratherm on 30 June 2009.

Based on this, the rig will not be available to commence the spudding of Panax’s Salamander-1 well until the second half of January 2010.

Managing director Bertus de Graaf said today while the extended delays to the commencement of the drill programme were disappointing, Panax is well prepared for the commencement of transporting the rig to the Penola site for spudding of the well.

Drill operator has advised that the drilling rig is continuing to operate to specification and that no mechanical or associated issues have been encountered.

He noted to Panax shareholders that it was unlikely that the drilling of the Salamander-1 well will suffer from major delays.

Out of a total 28 petroleum wells drilled in the Penola Trough, 11 were deeper than 3,000m, averaging 3,240m. The average drilling time over these 11 wells to reach total depth equates to 28.3 days - while the deepest well in the Penola Trough (Katnook-4) reached TD of 3,499m in 24 days.

Salamander-1 is designed to reach a maximum depth of 4,000m, but may be pulled short following confirmation of the intersection of high porosity/permeability zones within the target reservoir.

The Queensland-based geothermal company launched a placement to institutional and sophisticated investors to raise A$3.75 million and a Share Purchase Plan to raise up to A$4.25 million.

The proceeds of the equity raising will also be used in conjunction with existing cash reserves, combined with the remaining undrawn amount of the Geothermal Drilling Program grant to fund the drilling of the Salamander-1 well at the Penola Project.

This includes a potential increase of approximately A$2 million in budgeted costs and for additional working capital requirements on the project.

The Salamander-1 well is a production well designed with the aim to convert part of the geological resources of the Penola Project into Geothermal Reserves.

The well is designed to reach a maximum depth of 4,000m, but may be pulled short following confirmation of the intersection of high porosity/permeability zones within the target reservoir.

The latest news pushed Panax shares up about 3c to 17.5c at 3pm.

Panax managing director Bertus de Graaf said the raising would mean that on completion of the current drilling and testing program, the company would continue to have cash on hand to meet working capital requirements.

"The potential additional budgeted costs mainly relate to rig transport and mobilisation from the current working location in the Cooper Basin to our Penola site in the south east of South Australia, the preparation of site civil works and site facilities, and holding costs due to delays of the arrival of the contract drilling rig," Dr de Graaf said.
Upon the successful completion and production testing of the Salamander-1 well, Panax aims to establish the first geothermal reserve in Australia, allowing the Penola Project to move a step closer to becoming the first Australian grid connected geothermal power plant.

Following the Placement and Share Purchase Plan, Panax will have up to approximately A$22 million in available cash, and an additional A$4.5 million remaining to be drawn down under the Geothermal Drilling Program grant.
The Record Date for the Share Purchase Plan will be 18 November 2009.

The equity raising will be separated into the following components, consisting of a Placement to institutional and sophisticated investors to raise A$3.75 million, via the issue of 25 million fully paid ordinary shares at an issue price of A$0.15 per share.

The placement participants will also receive one option in Panax for every two shares issued under the Placement, with an exercise price of A$0.25 and an expiry date of 20 December 2011.

The Placement is subject to shareholders approval at the company's AGM on 25 November, refreshing its placement capacity by ratifying an earlier issue of shares by the Company in June 2009.

A Share Purchase Plan to all shareholders on the Panax share register with a registered address in Australia or New Zealand as at 6.00pm Brisbane time on 18 November to raise up to a maximum of a$4.25 million, via the issue of up to approximately 28.3 million fully paid ordinary shares at an issue price of A$0.15 per share. The issue of shares under the SPP is not subject to shareholder approval.

An SPP enables sharholders to invest without costs associated with a market purchase.

Subject to shareholders, at the company's EGM in December, refreshing the Company's placement capacity by ratifying the issue of the Placement Shares and the grant of the Placement Options, SPP participants will also receive one option in Panax for every two shares issued under the SPP, with an exercise price of A$0.25 and an expiry date of 20 December 2011.

A maximum of approximately 14.2 million SPP Options will be granted.

Estimated new spud date for Salamander-1 well is towards the middle of December 2009, some 80 days later than originally anticipated.

The drill rig is now estimated to be released from its current location on or about 17 November 2009, however sufficient time needs to be allowed to transport the rig from its current location.

Significant delays at the current drilling site where the rig is located have occurred.  Panax was advised that the cause of the latest delay is due to “unexpected geological problems that require time to be investigated”.

The company said it is in readiness for the commencement of transporting the rig to the Penola site, and all preparations have been completed for spudding the well.

The Salamander-1 well is a production well designed with the aim to convert part of the geological resources of the Penola Project into Geothermal Reserves.

This will form the basis for the development of a commercial, grid connected Demonstration Plant, a first for Australia.

In a statement managing director of Panax Bertus de Graaf has sought to allay concerns of shareholders, indicating "that it is unlikely that the drilling of the Salamander-1 well will suffer from major delays."

He said out of a total 28 petroleum wells drilled in the Penola Trough, 11 were deeper than 3,000m, averaging 3,240m. The average drilling time over these 11 wells to reach total depth*) (“TD”) equates to 28.3 days.

The deepest well in the Penola Trough (Katnook-4) reached TD of 3,499m in 24 days.

Salamander-1 is designed to reach a maximum depth of 4,000m, but may be pulled short following confirmation of the intersection of high porosity/permeability zones within the target reservoir.

Bertus de Graaf managing director of Panax said the contract drilling rig Le Tourneau Lightning Rig # 828, is now estimated to be released from its current location on or about 7 November 2009.

After allowing for sufficient time to transport the rig from its current location, he said the company expects to be able to spud Salamander-1 well towards the end of November 2009 - some 70 days later than originally anticipated.

Panax investors welcomed the news, pushing the share price up 2.5%, to 20.5 cents.

The Salamander-1 well is a production well designed with the aim to convert part of the “Measured Geothermal Resource” of the Penola Project into Geothermal Reserves.

This would in turn form the basis for the development of a commercial, grid connected demonstration plant, representing a first for Australia.

Weatherford Drilling International advised Panax the well it is currently drilling continues to encounter difficult drilling conditions.

The company also informed Panax that Rig # 828 is unlikely to be released from that drilling site until at some stage between the middle of next month and first week of December 2009, about 3 months later than planned.

On this basis, Panax is unlikely to be able to commence the spudding of the Salamander 1 well until mid December 2009.

As previously explained, Panax shareholders should note that for the reasons set out below, such unexpected slow penetration rates and difficult drilling conditions are unlikely to affect the Salamander-1 drilling program.

Panax managing director Bertus de Graaf said the continued delays in the availability of the contract drilling rig were disappointing.

“However, Panax is ready to commence its drilling activities,” Mr de Graaf said.

”Records from previous wells in the target reservoir zone show we can be confident that the drilling of Salamander-1 is highly unlikely to take longer than planned.”

The Penola Geothermal Project is targeting, geologically speaking, relatively young rocks which are well known to the petroleum drilling industry, as these are the common host rocks for oil and/or gas.

The Penola Geothermal Project also greatly benefits from the existence of a large data base, including logs of 11 wells that have been drilled to deeper than 3000m.

The deepest well in the Penola Trough was drilled to a total depth of 3499m in 24 days, or 146m a day.Salamander-1 is planned to be drilled to a maximum depth of 4000m, but may be pulled short at 3,800 m following confirmation of the penetration of high porosity/permeability zones within the target reservoir.

While awaiting arrival of the drilling rig from another site, Panax has advanced site construction works at Penola, as well as nearing completion of the well site and access roads.

The rig, owned by Weatherford Drilling International, will be mobilised to Penola to drill Salamander-1 in October 2009.

Interestingly, a total of approximately 135 semi-trailer loads will be required to transport this 2,000 HP rig and the associated 45 man camp.

Kerry Parker executive director of Panax said procurement of all long lead items are either completed or sufficiently advanced. Casing shipments have arrived into stock.

Salamander-1 will be the first drill test of a geothermal, hot sedimentary aquifer in Australia, and as such drilling of this first production well, is keenly anticipated.

Parker said Weatherford had advised that the performance of the contracted rig is currently operating to specification and that no mechanical or associated issues have been encountered.

Recently, mobilization of Rig # 828 to be used for drilling of Salamander-1 was delayed by one month or more, due to unanticipated hard formations encountered in rocks at its current drilling location, which are much older than those normally targeted in the petroleum industry.

Managing Director Bertus de Graaf has allayed concerns relative to that incident, indicating there is no risk of casing failure due to embrittlement in the Salamander-1 well.  Because;

- Over a period of 10-20 years or more, none of the 28 wells drilled to date in the target reservoir have shown any sign of casing failure due to “embrittlement” or any other factors;
- Records show that the target reservoir (the Pretty Hill Formation) in the Penola Trough does not produce hydrogen sulphide;
- Pressure conditions in the target reservoir are hydrostatic, i.e. the casing is not “overpressured”;
- Casing strings to be deployed in the Penola Project are manufactured of standard grade steel casing, such as has been deployed in local gas production wells; and

Penola is a Hot Sedimentary Aquifer project, commercially proven and with a fast development profile. Drilling will spud Salamander-1, as soon as the contract rig is available.

The detailed project model, and assumptions relating to electricity pricing, tax and depreciation were audited by KPMG.

The study demonstrated that Panax's advanced, conventional geothermal project is commercially attractive. Penola Project is located within a few kilometres of the national grid (NEMMCO grid).

The development concept underlying this analysis is the same as previously advised by Panax in prior studies, i.e. being a staged development as follows (Panax Base Case):

• Demonstration Plant (5.9 MW net);
• Phase I Plant (17.7 MW net); and
• Phase 2 Plant (59.0 MW net).

To provide bench-mark costs for comparison with the costs of other forms of renewable “clean energy” such as wind, a separate financial analysis of a stand-alone 59.0 MW (net plant) Penola Project (rather than the staged development in the Base Case) has also been completed by Panax (Stand-Alone Case).

The main inputs of this Stand-Alone Case assume the costings of the Phase 2 plant without the additional costs that are incurred on a unit basis which are associated with the staged development under the Panax Base Case.

Key outcomes of this new Stand-Alone Case are as follows:

- The Penola Project can produce zero emission, base-load power, on a net plant, grid connected basis, at a long range marginal cost of A$51 per MWh (pre-finance) and A$83 per MWh (post-finance assuming a 10% cost of equity).

These results are competitive with wind power, with the added advantage that the Penola Project can deliver base-load power (24 hours/day, 7 days /week) and that it is located ‘close to the grid’.

Both of the above cases are based on the generation of 6.7MWe gross and 5.9MWe net plant power per production well, in accordance with assumptions in previous statements, (i.e. 59 MW plant is based on the net-plant output from 10 production wells).

Drilling of the first production well (Salamander-1) is scheduled to commence during October 2009. Both the well and drilling programme design have greatly benefitted from off-take data from 28 previously drilled, deep petroleum wells. Salamander-1 will be the first drill test of a geothermal, hot sedimentary aquifer in Australia (see above) and site preparation has commenced.

The well testing programme is designed to establish an initial geothermal reserve, sufficient for a decision to commence the development of a 5.9 MW net plant Demonstration Plant, within three months of completion of drilling.