Matt's old flame Anita Hargreaves returns to town after 25 years away just as her father suffers a heart attack. Matt is dumbfounded by her hospitality towards him — and Kathleen's coldness. A bitter Anita forcloses on Matt's loan, only to learn that she had not been jilted by Matt years ago, but tricked by her father. Luke strikes gold.

Danni McGregor and Michael ride into a herd of brumbies. In the confusion Danni is thrown and falls into a disused mine shaft. Michael goes for help, but becomes lost in dense scrub and falls unconcious from cold and shock. Anita sees Matt's obvious affection for Kathleen and realises trying to rekindle their lost love could be useless. News of Luke's gold strike spreads.

Lawlessness abounds as miners stream into Paterson's Ridge. Anita Hargreaves invites Luke to dinner. Colin McGregor proposes to his organist Emily Cornish. Rob and Luke, in defending Victoria Blackwood's honour, get into a punch up with some miners, and Matt finds the courage to ask Kathleen to go with him to the Mountain Ball. Meanwhile, Frank Blackwood plans to poison Kathleen's cattle to force her from her land.

Oliver Blackwood schemes to take over Matt's land. Frank Blackwood is jealous of his father's business dealings with Luke. Herbert arrives home with some local dignitaries to find Anita and Luke in a passionate embrace. The next day their liaison is all over town, and Anita arrives at the Mountain Ball on Luke's arm. Oliver Blackwood asks Anita to share his life at Balmoral, but before she can answer, a shot rings out and he falls to the floor.

Frank steals a substantial amount of gold from Luke, only to have it taken from him by gentleman bushranger Harry Roebuck. Meanwhile Luke, already mortgaged to the hilt, falls further into Blackwood's debt. Blackwood arrogantly makes Matt an offer for Langara, saying he has plans to marry Anita.