ANDROMEDA METALS LIMITED — AGM Information 2011

Nov 21, 2011

CHAIRMAN’S ADDRESS

Annual General Meeting

Stamford Plaza Adelaide, 150 North Terrace, Adelaide

Tuesday 22 November 2011

Today’s Chair and Managing Director commentaries are a little different to normal. It’s usual for the Chair to give an overview of the Company through the past twelve months, and then for the CEO to provide a more technically based presentation. Whilst Chris Drown, our Managing Director, will give a presentation about the Company’s activities, and what we hope to achieve from the shareholders money which has been spent on exploration over the past twelve months, I am going to restrict myself more to the corporate angles of our Company, and provide a few insights into our thinking.

When we met a year ago, it’s fair to say there was a degree of enthusiasm about where Adelaide Resources was heading. Our share price was 24 cents and we announced the proposed spin-off of the non-Tennant Creek assets. Fast forward a year, and the share price is around 9 cents.

Let’s be blunt, we can’t control our share price over the short term, but can do two fundamental things as a board of Directors, from a strictly corporate viewpoint:

• be cognisant of the environment around us, particularly insofar as it impacts on our forward planning; and

• be aware of what we believe the underlying value of the Company’s securities to be.

By performing these functions properly, we should be able to regulate the pattern, aggression and general shape of the exploration programs which your equity capital is funding. Let’s have a look at a few of the external factors which shape the environment for our decision making.

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The main stockmarket index upon which we focus is the S&P/ASX Small Resources index, an index of 86 smaller producers, developers and explorers with market capitalisations currently between $70million and $2.5billion. From a level of around 6100 at the end of October 2010, this S&P/ASX Small Resources index advanced about 15% to its peak of 7020 in mid-January 2011. After meandering around for about three months, from April 2011 onwards, in tandem with world equity markets, the index embarked on a 35% slide over the next five months. There has since been an 18% rally since 26 September to the end of October 2011.

The first half of this descent coincided with our attempts to spin off the non-Tennant Creek assets into Peninsula Resources. With markets devaluing smaller resources companies by over a third in the space of five months, not surprisingly, we opted to sit on these assets rather than share a stake in them, at a discounted value, with investors outside of ADN shareholders.

Why did markets take an axe to smaller resources securities? Pretty simply because they are the higher risk end of the investment spectrum, and risk was the last thing investors wanted to take on over that period. How do we know this? Because, like most things in investment market’s these days, there’s an index to measure it. In this case, it’s the Chicago Board Options Exchange Volatility Index (or VIX) which is a key measure of market expectations of near-term volatility, as measured by the volatilities priced into the US S&P 500 stock index option prices. Without becoming too sophisticated and looking at other CBOE derivative measures, the higher the level (expressed as a percentage) then, in effect, the more risk averse investors are, as measured in the US equity arena.

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The VIX has a history back to 1990, and its long term average is around 20%. This chart of the last twelve months shows that, somewhat incongruously, S&P 500 stock index option investors were pricing in below average, indeed well below average levels of risk, until about July 2011, when all of a sudden they got really scared. Might have been something to do with Europe, China and perceptions of lower growth. Whatever the specific reasons,

investors became VERY risk averse, and so smaller Australian resource exploration companies are hardly going to be top of their investment list.

Of course, that means that with few people that interested in such investments, the chances are that they get mis-priced, just as many resources companies did in the latter part of 2008 and the first quarter of 2009, including our own.

That few people currently seem interested in smaller resources shares in Australia at present is further magnified by the following chart; it plots the average dollar value of the trades in stocks which comprise the S&P/ASX Small Resources index. At the start, of the last major bull market in Australian shares in March 2003, the average trade on the ASX was around a $40,000 ticket; in the smaller resources area, it was about $10,000 – a quarter of this. As resources shares began to grow in popularity in early 2005, the average trade in small resources index shares grew to $15,000. As the average trade size in ASX shares fell to about $11,000 in the wake of the 2008 GFC, trade sizes in smaller resource stocks fell to around $4,000. Around this time last year, the average trade in such shares was around the $4,500 mark. Despite the gyrations within this chart, it’s clear there is a trend – DOWN. Whilst over the course of the past twelve months to 31 October 2011, the average trade size is about $3,500 in such stocks, in the past three months it’s been a meagre $2,875.

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This reflects the low volumes, and high frequency trader driven markets we have been in over the past few months; when added to the risk aversion which has dogged smaller resources companies, maybe, just maybe, this means we are getting close to a nadir in the area of the market where our company has to look for capital over the medium term.

Of course, these conditions are a hefty influence on the ability of smaller resources companies to raise capital, and then ultimately spend that capital on exploration. Thanks to my background, and a bit of smart spread-sheeting, Adelaide Resources has access to financial data on a specially compiled list of 678 currently ASX listed exploration and development companies, ranging from quoted market capitalisations of $1million up to five companies in the $2billion area or above.

The following chart – again please note the different axes - tracks these companies back to June 2008, when they raised about $1.3billion of new equity and spent around $1.17billion on exploration. As you can see, from the line, the exploration spend hasn’t been over a billion dollars a quarter since – indeed, the quarter to June 2011 with $848million spent is the best in twelve quarters. The average in the past thirteen quarters is just below $600million, but with capital raisings of about $1.5billion. Don’t forget this capital also goes to pay administration and mine development expenses as well.

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With access to this data, we can also compare ourselves with the peer group companies. So let’s have a look at how we stack up. The data is as at 10 November 2011 and the exploration spends are taken from the ASX 5B quarterly statements, in this case to end June 2011 as some of the September statements have not been fully compiled by the data provider.

The 678 companies had an equity market value of their quoted securities (i.e. excluding escrowed stock) of about $63billion – just for comparison, that’s about half the level of BHP’s Australian quoted shares and just shy of a third of its total market value including the UK shares. The average market value of the 678 companies is about $93million and they hold around $14m in cash on average; hence a proxy for enterprise value, since it doesn’t include the holdings of other shares, is about $79million per company. Despite this, on average they spent just over $4million on exploration in the twelve months to June 2011, or the equivalent of 5.2% of enterprise value. We can make some adjustments to take out the Top 20 companies – Lynas, Atlas, Extract and the like – to gain a more representative sample where the average market capitalisation is $55million, they hold an average of $10million in cash and spend about $3.8million on exploration, or 7.8% of enterprise value.

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In market capitalisation terms, we are about two-thirds of the way down the list; but are in the top tercile for cash holdings; that, of course, places us in the 70[th] percentile in terms of value attributed to our acreage. However, we are virtually in the top quartile of exploration spend over the past twelve months. As a consequence of our low enterprise value and high exploration spend, we are in the 8[th] percentile of companies giving you a “bang for ” – your buck exploration spend as a percentage of enterprise value.

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Let’s put the spend we made last year in context, as I did in the Annual Report. It was the highest ever for the company at over $4million; in the past two years, we have spend $7.5million, which compares to $10.3million – net of reimbursements – spent in the preceding TWELVE years. These are the blue bars in the chart. In the past, illustrated here in purple, we have also had a significant quantum of spending on projects by JV partners. There is a reasonable debate about using your own or a partner’s money; for sure, you know

if the partner pulls out, the likelihood that the project retains its worth is somewhat questionable.

What’s also important is that we have kept administration expenses at a sensible level, having due regard to the fact extraordinarily low levels of administration expense do mean that you simply don’t have the people on the ground to get things done. I don’t think profligacy is in the Adelaide Resources dictionary.

So, either we’re not finding anything of value, or equity investors are not appropriately recognising the value of our properties relative to the peer group. Chris Drown will, I hope, convince you that we are most certainly progressing our prospects. So we feel our shares don’t properly represent the inherent value of our tenements, and that it is crucial that we do something about it. If we don’t, shareholders in Adelaide Resources are losing out as a consequence.

There are many ways to try to remedy this problem. We are attempting to improve the promotion of the company, though it has to be said that in periods like the past six months, such presentations often fall on deaf ears. We can, of course, seek to operate corporately to fix the problem. In this respect, over the past two months, we have signed non disclosure agreements with third parties in relation to examining the values, opportunities and future possibilities for some of our projects. We have also been innovative in announcing a share buy back, though compliance constraints have prevented the buy-back from being active. I should stress to those shareholders who disagree with buy-backs that they are part and parcel of good capital management; I don’t know where this “it shows you can’t grow” defeatist attitude comes from. Retiring expensive equity capital is rarely a bad thing. If our shares are cheap to investors, conversely, they are expensive for us to issue.

I hope I’ve shown you today that in the midst of all this global financial turmoil, we’ve been keen to continue the progression of our main projects. We had some weather driven hiccups around April 2011 at Tennant Creek, but progress since then has been good. As Chris will also explain, we are planning an exciting summertime program on the Yorke Peninsula. Chris will also assess the exploration theses behind our drilling in 2011 and illustrate the areas where we think there will be further excitement in 2012.

I touched on our administration spend a few minutes ago. You will see when we come to it, that we have received a reasonable vote against the remuneration report. If you look at the annual report, the non executive Directors receive $38,500 each per annum and I take $62,500. These figures are at or below the level of peer group companies, which the Remuneration Committee assessed in a fulsome review last year. Our key executive personnel are once again, paid at around industry average levels for their roles. For those of you voting against the remuneration report, are you actually voting against the level of remuneration our personnel are receiving, or does your vote represent disillusionment about some other factor, such as the share price, or an individual dislike of one of the Directors? Whilst there are clearly companies deserving of censure for their remuneration protocols and general corporate profligacy, I’m not sure Adelaide Resources is one of them.

Before handing over to Chris, I wish to commend all of the staff and consultants to the Company; as we’ve shown, we run a tight head office structure and attempt to get your money spent on exploring, not administering. Barbara Anderson, our Exploration Manager, has once again worked long and hard to pull an efficient NT exploration program together, , whilst Tanya Badenhorst has done a similar sterling job on the Yorke Peninsula. Barbara and Tanya have been well assisted by a competent team of field geologists including Dave, Andrew, and Kim, and field hands including Conan and Louise. Nick Harding has been exceptional as our new Chief Financial Officer and Company Secretary, and Christine, Chris and Marika, our other head office personnel, have been invaluable in their roles.