asx ann for the faithful

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    KANOWNA CONSOLIDATED GOLD MINES LIMITED 2003-05-12 ASX-SIGNAL-G

    HOMEX - Perth

    +++++++++++++++++++++++++
    RESPONSE TO ASX QUERY

    We refer to your letter dated 6 May 2003 and provide the follow
    response:

    1.0 The consolidated entity expects cash operating outflows to
    significantly decrease from the level experienced in the March 2003
    quarter due to:

    * Increased debtor collection from expanding sales from its Spot On
    Laser & Tool Division including sales from its internally developed
    and recently released LR504DSG dual grade laser;

    * Increasing debtor collection from expanding sales from its Spot On
    Technology Division's Inclinometer where prior development work has
    seen the Inclinometer being incorporated or about to be incorporated
    in a number of new products.

    The consolidated entity's quarterly net operating cash outflows have
    been progressively reduced from June 2002 onwards as the consolidated
    entity moved from development activities through to the building of
    market networks to effectively allow the sale of its products
    including its internally developed Inclinometer in a number of
    applications. This transition through to a marketing orientation has
    taken the consolidated entity several months longer than previously
    expected.

    The consolidated entity reviews all cost centres on an ongoing basis
    and action is taken, where necessary, to ensure all expenditure
    incurred (operating and non operating) is relevant to achieving
    objectives.

    It is noted that the consolidated entity has approximately $887,000
    (at cost) of saleable trading stock and component parts on hand which
    includes $665,973 relating to its Inclinometer.

    2.0 The consolidated entity expects its operating activities to be
    cash flow positive from the September 2003 quarter onwards.

    To assist in the "ramp up" process of its sales the consolidated
    entity has entered a loan agreement with a party related to a
    Director. Funds advanced under the facility are secured by floating
    charge over subsidiary company Kanowna Technology Ltd's assets.

    To further assist in this "ramp up" process and to pursue further
    development opportunities the Directors may consider securing funds
    by way of a new issue of shares.

    3.0 The Company confirms it is in compliance with listing rule 12.2.

    4.0 The Company confirms that it is in compliance with listing rule
    3.1.

    R Arancini
    COMPANY SECRETARY


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