Medusa Mining Limited
01 August 2007



                             Medusa Mining Limited

           Heads of Agreement and Investment in Sierra Mining Limited


Medusa Mining Limited ("Medusa" or the "Company"), the Australian based company
operating and developing gold mines in the Philippines, is pleased to advise
that it has signed a Heads of Agreement with Sierra Mining Limited ("Sierra")
whereby the Company, after completing satisfactory due diligence, will earn a
70% joint venture interest in Exploration Permit application ("EPA") 000037-XIII
and Mineral Production Sharing Agreement application ("APSA") 000003-XIII
(together the "Bunawan JV").



This is the last remaining significant parcel covering a total area of 88.8
square kilometres (8,800 hectares) which is contiguous to the Company's Co-O
Project. Medusa will then control in excess of 800 sq km of tenements along the
East Mindanao Ridge.



Upon completion of due diligence and signing of a Joint Venture Agreement 
("JVA") between the companies' respective Filipino corporations, Medusa has
agreed to acquire 4.85 million shares in Sierra representing 9.9% of the
enlarged share capital. The shares are to be acquired at an issue price of
A$0.25 each, representing a total consideration of A$1.21 million. Medusa has
also been granted 2.425 million unlisted options over Sierra shares exercisable
at A$0.30 each with an expiry date of 4 years from the date of signing of the
JVA.



Sierra is quoted on the ASX and its shares last traded at A$0.22 per share
giving the company a market capitalisation of A$10.78 million.



The Company is of the opinion that the new parcel of land and investment in
Sierra will significantly increase its exposure to the highly prospective
geology of the East Mindanao Ridge, an area with known world class deposits.



Sierra also controls three projects totalling 263 square kilometres to the south
of the Company's Co-O Project in recognised mineralised areas with known world
class deposits. These tenements are prospective for porphyry copper deposits and
high grade gold veins. Sierra also owns two groups of prospects in Papua New
Guinea.



Geoffrey Davis, Managing Director of Medusa, commented:



"We are very pleased to have concluded this agreement.  Following completion,
Medusa will have control of the all the tenements adjacent to its Co-O mine.
This will allow the Company to evaluate fully an area that we believe to be
highly prospective."





Joint Venture Terms



The key terms of the Heads of Agreement with Sierra are as follows:



Medusa has the right to earn a 70% interest by:


i)   contributing a minimum of USD1,500,000 expenditure on exploration and/or  
     development of the tenements in the Bunawan JV. This amount is to be spent 
     over a period of three years from the date of granting of the necessary 
     permits over the aforementioned Mindanao tenements,


ii)  after Medusa has earned its 70% interest, Sierra has the right to 
     contribute to ongoing expenditure or dilute to a 3% Net Smelter Royalty;

-    Medusa is required to spend US$300,000 within 1 year after granting of 
     the tenements; and

-    Medusa is responsible for all costs incurred to progress the tenements to 
     granting.



The Heads of Agreement will be replaced by a Joint Venture Agreement ("JVA")
between the parties' respective Filipino entities in the near future. This
agreement will be subject to the satisfaction of normal due diligence
investigations within 30 days of signing the JVA.



Sierra's Co-O Area Tenements



The Company regards the Bunawan JV tenements as prospective for narrow vein gold
deposits and potentially porphyry copper-gold deposits. The geology of these
tenements is described in Sierra's prospectus, which can be viewed on
www.sierramining.com.au. Several areas within Sierra's tenements are currently
subject to small scale mining activities attesting to the presence of high grade
gold mineralisation. No modern exploration has been conducted on the tenements.



Sierra's Southern Tenements



Sierra's prospectus describes the Ayan, Nabunturan and Bahayan Projects that it
owns to the south of the Co-O Project and comprising 263.6 square kilometres of
tenements at very prospective locations.



The Ayan Project comprises granted Exploration Permit 000001-06-XI and
applications 118 and 131. These are situated predominantly southeast of the
large undeveloped Kingking porphyry copper deposit (1 billion tonnes at 0.3%
copper and 0.4 g/t gold) and with several blocks within close proximity to the
south side of the Kingking Deposit.



The Nabunturan Project is located on the north-western edge of the well
mineralised North Davao Mining District where there has been past production
from porphyry copper deposits (including the Amacan Deposit where the remaining
resources are 110 million tonnes at 0.3% copper and 0.4 g/t gold) and high
grade, low sulphidation epithermal quartz veins, eg, the Hjio Vein. The
mineralisation in this area is associated with a volcanic caldera complex and
hot spring activity.



The Bahayan Project is contiguous with and on the northwest corner of the
government controlled Diwalwal Deposit, which is nearing depletion. It is
estimated that the Diwalwal high grade, low sulphidation, epithermal vein
deposit has produced in excess of 7 million ounces of gold.



Maps and cross sections which accompany this announcement can be viewed in the
ASX version of the announcement on the Company's website:
www.medusamining.com.au





The information in the above announcement was compiled by Geoff Davis, who has
sufficient experience which is relevant to the style of mineralisation and type
of deposit under consideration and to the activity which he is undertaking to
qualify as a Competent Person as defined in the 2004 Edition of the 
"Australasian Code for Reporting of Exploration Results, Mineral Resources and
Ore Reserves". Geoff Davis consents to the inclusion in the report of the
matters based on his information in the form and context in which it appears.


                      This information is provided by RNS
            The company news service from the London Stock Exchange

• News Channel