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occasion of much rejoicing in Naseby. Since that date the race has been continuously bringing in a large supply of water for mining purposes. There was at first some little delay in bringing the water into use. This was in part to be attributed to the hard frosts then prevailing, and also to some extent the fact that comparatively few miners were in a position to buy water by paying for it in advance. It soon became evident that it would be necessary to somewhat relax the stringency of the regulation requiring payment in advance, and an arrangement was made by which miners were allowed credit for water to be used in the operations preliminary to the actual washing for gold. This plan has worked well, and the water has been all taken for some time past. It is satisfactory to note that so far the race has worked without a break, or any interruption of supply, and it is only just to say that this immunity from accident is largely due to the careful supervision of the manager, as well as to the excellence of the original construction. The risk of injury to a new race is always considerable, as slips can hardly be avoided; but in this instance no slips of a serious character have occurred, and the few that have from time to time happened have by careful watching been rendered almost harmless. The head-race and sludge-channel, with their connecting flushing race, and the dams and races for distribution, constitute an elaborate system, which requires much care and prudence in its management. The benefit to the mining interest of so large and continuous a supply of water is already very sensibly felt, and it is fully to be expected that during the next few years its usefulness will be more and more developed. The sale of water already amounts to about £250 per month, and there is every probability of this amount being, iv the course of even the ensuing year, largely increased, while the expenses of the maintenance and management will be diminished. To turn the property to the full advantage of which it is capable, it will be necessary to construct some further portion of head-race to bring in an important mountain stream, which yields a large and unfailing supply of water in the driest seasons. This would be by no means a costly work, and the advantage of any means of keeping up supplies in the drought of summer, when all ordinary sources fail, can hardly be estimated in money value. The actual revenue of the race during the period that it has been in operation has been as follows : —Sale of water from race, and channel dues, £1,514 Bs. 4d.; of this the amount received in cash has been £728 18s. lid., the remainder being on credit. 3. In my last report I took occasion to remark that the expectation of the opening of the race had given a certain stimulus to trade in Naseby, and that the opening up of some land for settlement had also had a beneficial effect. This latter source of advantage is likely to be still further wrought upon as the agitation for the opening of more land still continues, most of what was put in the market having been taken up. It is a sign of the times that the prospectus of a flour mill company has been published, and it is believed that before long many of the settlers now only fencing, or breaking up their land for the first time, will have corn to sell as grist to the mill. 4. This expectation is still further justified by the probability that before very long there may be a railway through this part of the country. In my report of last year, already alluded to. I mentioned that there was an agitation on foot to get a railway to lap the interior country of Otago. lam now in a position to record one step in advance. The railway is so far determined on that the survey for it is being rapidly pushed on, and it is only a question of time when it will have become an accomplished fact. 5. The tunnelling at Fullarton's, from which so much was expected, has, I am sorry to say, come to a standstill. The Star of Otago Company, which, with the most commendable energy, had set itself to the task of exploring the hidden treasure of the hill, has unfortunately fallen into financial difficulties, and the works are all stopped, and the company wound up. It is doubtful whether any other adventurers will soon be found to make further trial for the riches which it is so confidently asserted are only waiting to be taken possession of. 6. The Muddy Creek Company at St. Bathans have made some progress with the water-race on which they rely to enable them to complete the channel, but they have found the undertaking heavier than was anticipated, and have still a good deal of work to do before they can hope to get any return for their labour. They have been successful in obtaining a grant of Government money to assist them in their enterprise, but have not yet been in a position to draw any portion of it, as advances will only be made in proportion to the length of channel actually constructed, and they can do nothing to the channel until they get their head water-race in. 7. Some very good new sluicing ground has been opened at a place known as A 7inegar Hill, near AVelshman's Gully (Cambrian). The ground is heavy to work, but its richness is undeniable. 8. Quartz-mining at Serpentine has taken a new start. Quartz veins were long known to exist there, and they have been prospected from time to time, but with no particular success until lately. At last, however, some really promising discoveries have been made, and a company has been formed, which seems to have every prospect of a fair success. The company is now getting machinery erected, and it is expected that next season will show some good cakes of gold. The success of the company has stimulated other miners to prospect, and several new claims have been taken up. It remains to be seen which of them will be actuall}' worked. 9. The Chinese population has decidedly increased, and Chinese miners are doing very good work in several parts of the district. This is especially the case at Kyeburn, where they have been working the bed of the stream, by means of long covered tail-races, with marked success. 10. The revenue for the year has been as follows : — £ s. d. Gold revenue, including mining leases ... ... ... ... 1,371 15 8 Warden's Court, fees and fines ... ... ... ... 97 9 6 Agricultural leases and rents ... ... ... ... ... 3,126 5 2 Deferred-payment lease rents... ... ... ... ... 1,010 1 5 Resident Magistrate Court fees and fines ... ... ... 299 8 10 Cash received for water, Mount Ida AVater-race, and channel dues, already referred to ... ... ... ... ... 728 18 11 Total ... ... ... ... ... £6,633 19 6 3--H. 4.