ARCHER MATERIALS LIMITED — Interim / Quarterly Report 2011

Oct 20, 2011

21[st] October 2011

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Quarterly Activities Report For the period ended 30[th] September 2011 HIGHLIGHTS FOR THE QUARTER

EXPLORATION

GRAPHITE

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Large crystalline graphite recorded in all of the first three areas tested on Wildhorse Plain.

• Campoona Graphite Shaft samples recorded 30% crystalline graphite ranging to 250µm (US 60 mesh and classified as Large flake graphite) with an average length of 100µm (US 140 mesh).

• Campoona South recorded 15 to 20% crystalline graphite ranging to 300µm (US 50 mesh and classified as Extra Large flake graphite) with an average length of 250µm (US60 mesh) within graphite clots up to 4mm in length.

• Council Pit recorded 15 to 20% crystalline graphite with an average length of 300µm (US50 mesh) and maximum flake size of 1,000µm (US 18 mesh classified as Super Large graphite flake graphite).

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• The commercial price realised for graphite is based on size and purity. Large flake graphite (>180µm or US80 mesh) is in high and growing demand for use in fuel cells and Lithium-ion batteries and currently trades for >US$2,500/t.

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• A detailed close-spaced airborne Electro-magnetic geophysical survey was flown over the Campoona South area in July 2011. The survey followed-up a historic wide-spaced EM survey that indicated up to 8km of strike of highly graphitic schists which have recorded Large and Extra Large flake graphite.

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• At Sugarloaf re-assaying of historic drill samples previously not assayed for carbon returned wide high grade graphite intercepts including 20m @ 13% C in drill hole CHRC011 and 31m @ 14.37% C in drill hole CHRC012. Within the high grade intervals there are very high grade intercepts including 5m @ 22.56% C in CHRC012.

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• Continuity of the Sugarloaf graphite deposit now confirmed over a strike length of 2.2km. The deposit remains open along strike to the north.

METALLURGICAL STUDIES:

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• Commencement of flotation work on Sugarloaf and Wildhorse Plain graphite samples.

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• Campoona South sample sent to graphite mill in the US for graphite characterisation.

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• Metallurgical testing commenced on samples of the Company’s Mt Hutton magnesite deposit at Leigh Creek.

FINANCIAL

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• Cash in bank on 30[th] September 2011 of $2.288 million.

• $280,000 spent on exploration during the quarter.

Summary of the September 2011 Quarter Exploration Activities

Graphite Exploration

Archer Exploration Limited (“Archer”) has a 100% interest in EL3711 Carappee Hill, located 10km east of Darke Peak in central Eyre Peninsula, South Australia that hosts the Sugarloaf graphite deposit. Sugarloaf has an Exploration Target* of 24-37Mt grading 10-12% total carbon which, in terms of tonnes and grade, makes the deposit very large in world terms. The deposit is open along strike and down dip.

*The potential quantities and grades presented are conceptual in nature, there has been insufficient exploration to define an overall Mineral Resource and it is uncertain if further exploration will result in the determination of a Mineral Resource.

In addition to the Sugarloaf graphite deposit, Archer has a 100% interest in all minerals other than uranium on nearby EL4693 Wildhorse Plain covering 816km[2] and EL3653 Elbow Hill covering a further 79km[2] .

Archer applied for an area of 54km[2] west of Wildhorse Plains in May 2011. The application has been accepted by the state and has been designated as Exploration Licence Application ELA148/11. Once granted, Archer will have a dominant landholding in what is shaping as a significant graphite province within the highly prospective Cleve Uplands.

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Figure 1. Archer’s Graphite Tenements and Interests in the Cleve Area of South Australia

Wildhorse Plain Graphite

Literature research identified that several occurrences of crystalline flake graphite occur on EL4693 Wildhorse Plain. Three of these areas, Campoona Graphite Shaft, Campoona South and Council Pit, were selected for immediate follow-up. Figure 2 highlights the areas as well as identifying the next areas to be sampled to determine if crystalline flake graphite is also present. Figure 2 also highlights areas where historic drill samples have been recently recovered for petrological evaluation.

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Figure 2. Historic recorded graphite occurrences on Wildhorse Plain

Campoona Shaft

Two samples were submitted for petrological examination by Pontifex and Associates in Adelaide.

The graphite content was reported as 25-30%. Overall size ranged mostly 10 m to 50 m (width) x 250 m (length). The average length was estimated by Pontifex as 100µm. The graphite occurs within “fairly homogeneous, quartz-graphite schist, incorporating minor porphyroblasts of muscovite crystals and small lenses of extremely fine sillimanite.”

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Plate 1. Reflected light, graphite is the white mineral, scale is 100µm (0.1mm)

Campoona South

One sample of the outcrop was submitted for petrology. The graphite content was reported as 15-20%. Overall graphite size ranged from 5 m to 80µm (width) x 300 m (length) with an average size estimated by Pontifex of 50µm x 250 m. Petrological examination reported the graphite as occurring within “heterogeneous, fine layered quartz-feldspar microgneiss, together with quartz-graphite schist”. This includes “minor quartz-clay-sericite-altered ex-sillimanite, and scattered small lenses of relatively concentrated graphite.”

The presence of sillimanite is important as it reflects a high grade metamorphic overprint has occurred. The metamorphism of a rock refers to the temperature and pressure that the rock has experienced over time. As metamorphic grade increases, higher pressures and temperatures generally enable the development of larger crystals sizes and, in the case of the graphite occurrences tested on Wildhorse Plain, is conducive to the formation of large crystalline flake graphite.

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Plate 2. Transmitted light, graphite is the black mineral, scale is 500µm (0.5mm).

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Plate 3. Reflected light, graphite clots are the white aggregates, scale is 200µm (0.2mm)

Council Pit

The Council Pit is a disused historic borrow pit.

The graphite content was reported between 15-20%. The overall size of graphite ranges from 2 m to 50µm (width) x 1000 m (length) with the average estimated by Pontifex of 20µm x 300µm. The range in length to 1,000µm is classified in the graphite market as Super Large graphite.

The graphite occurs within “schistose micro-gneiss, with thin intricately intercalated schistose layers of quartzfeldspar-graphite also scattered amphiboles”.

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Plate 4. Reflected light photograph, graphite is white to light yellowish, scale is 50µm.

Significance of Large Flake Graphite

The identification of several Large flake graphite occurrences on Wildhorse Plain is extremely encouraging and highly significant for the potential future production of high value graphite.

As a result, drilling at Sugarloaf was postponed in favour of assessing the resource potential especially of the the Campoona Shaft, Campoona South and Grid 2 graphite targets (collectively referred to as the Campoona graphite targets).

Metallurgical evaluation of Sugarloaf will continue and samples representing wide downhole intervals are presently being tested for graphite recovery.

Airborne EM Geophysical Survey

Historic exploration on the Campoona graphite targets has recorded highly graphitic rocks over significant drill widths (>25m). The petrological examinations highlight the potential of these targets to provide much prized high value large flake graphite.

As a precursor to drilling these very promising targets, an airborne electromagnetic geophysical survey was flown over the northwest portion of EL4693 Wildhorse Plain over two days in early August 2011.

Graphite is a highly conductive, that is, it conducts electricity. EM has proven to be very efficient at identifying buried conductive bodies. Previous explorers in the Darke Peak - Cleve area used electromagnetic surveys when searching for buried base metal sulphide deposits (copper, zinc and lead). When these explorers drill tested their buried EM anomalies they invariably intersected graphitic rocks which had provided the anomalous EM signature.

The specific aims of the August 2011 airborne EM survey were to determine the EM signature of the outcropping high grade Campoona South graphite deposit, to determine the potential strike of the graphite north and south under cover and to define the continuity of another graphite body, the Grid 2 occurrence, immediately to the south of Campoona South.

The airborne EM survey indicated excellent continuity of the high grade Campoona South graphite deposit along strike to the north and south under cover and also down-dip. The processed EM data showed strong linear continuity in the conductive rocks. Campoona South (plate 5) which forms a prominent outcropping ridge, supports the conclusion that the pronounced linear conductive features are graphitic in nature. Campoona South recorded 15 to 20% crystalline graphite ranging in size to 300µm (US50 mesh and classified as Extra Large Flake graphite) with an average length of 250µm (US60 mesh) within graphite clots up to 4mm in length.

Modelling and field observations indicate that the Campoona South graphite deposit has a minimum strike length of 2 kilometres and extends to depths of greater than 200 metres vertically below surface. This is highly significant given the very high carbon grade of the outcrop at 25.4% C.

Grid 2, another zone of graphite some 1.2km south of Campoona South, has a very strong conductivity response indicating the presence of significant graphite beneath cover. Drilling by Esso Exploration in the 1980s recorded abundant graphite over down hole intervals exceeding 40 metres. The strong conductivity response at Grid 2 suggests a minimum strike length of 3 kilometres and that it extends to over 200 metres vertically below the surface.

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Figure 3 Depth slice from 40m vertically, conductive areas are brightest areas.

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Figure 4. Depth slice from 80m showing the conductive structures, NOT the magnitude of the response. Section line 1195N shown for reference

Figure 4 (above) shows the two conductive structures extending south out of Campoona South and the larger mass extending north from Grid 2. Also highlighted is a section line (1195N) taken through Campoona South and Grid 2. Figure 6 below shows the two graphitic bodies in plan section.

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Figure 5 Section representation of the highly conductive Campoona South and Grid 2 graphite deposits, North is on the Left of the page. The two graphite deposits are labelled and depth extents highlighted.

Figure 5 shows that both Campoona South and the Grid 2 occurrences are persistent bodies that extend to a depth of at least 200 metres. Moreover these conductive zones can be observed from the north of the EM survey area to the south of the EM survey area, the strike length of over 3km.

Initially Archer planned to commence drilling these two potentially substantive graphite deposits in August 2011, but the contractor suffered delays. That drilling is now scheduled to commence in mid-October. Due to the presence of crops, this round of drilling will be confined to drilling on access tracks. Despite the limitations this drilling will give sufficient coverage to be able to test the potential of the two graphite deposits.

A second larger drilling campaign is scheduled for early calendar 2012 following the 2011 harvest.

Sugarloaf Graphite Drill Sampling

Archer completed a series of drill holes in 2008 testing anomalous copper-gold results grading >0.1g/t Au recorded in close-spaced rock chip samples taken at Sugarloaf. During the quarter, Archer recovered samples from two of those drill holes, CHRC011 and CHRC012, to assay for carbon. These results have now been returned and show that the Sugarloaf graphite deposit is continuous over a strike length of at least 2.2km.

The importance of these recent assays is that they confirm the northern strike continuity of the 2011 drilling (SLRC001 to SLRC004), see figure 6. Additionally and importantly the new drill intervals are close to intrusive felsic rocks that have potential to increase the graphite flake size in adjacent rocks. Petrology has commenced to confirm if larger flake graphite has been developed adjacent to the felsic intrusive bodies.

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Figure 6. Updated graphite intervals shown in yellow.

NB Goldstream and Helix drilled 41 drill holes at Sugarloaf testing copper and gold anomalism and 23 of those holes reported wide intervals of highly graphitic schist.

Updated graphite drill intervals for Sugarloaf

CHRC011

	From (m)	To (m)	Interval (m)
Rock Type				C%	Al%	Ca %	Fe %	Mg %	S %
schist	0	28	28	1.41	6.37	0.61	11.85	1.07	0.11
graphite/BIF	28	36	8	**9.51 **	4.07	0.78	3.67	11.95	0.03
quartz/graphite	36	39	3	1.69	3.07	0.08	2.99	0.46	0.05
BIF/ graphite	36	56	20	7.25	2.92	0.27	4.78	3.89	0.08
graphite	56	76	20	13.00	2.95	0.08	3.92	0.29	1.59
schist and quartz	76	103	27		8.65	4.61	7.16	4.01	1.48
				0.47
schist	0	28	28	1.41	6.37	0.61	11.85	1.07	0.11

Table 1. Major chemistry of graphite intervals in CHRC011

Anomalous graphite occurs throughout the drill hole including two wide intersections of higher grade graphite from 28-36m and from 36-76m down hole.

In reporting carbon assays for graphite it is important to ensure that assays are also conducted to detect other carbon-bearing minerals which if present, may give a false impression as to the grade of the graphite. From Table 1 it is clear that there is little to no carbonate present in the graphitic ore. Silica is the dominant gangue mineral present with subordinate chlorite, biotite and trace sulphur contributed by weathered sulphides.

CHRC012

The interval 75m to 80m reports 22.56% carbon with one interval (76 to 77m) reporting the highest carbon assay to date at 26.4% carbon.

	From (m)	To (m)	Interval (m)
Rock Type				C%	Al%	Ca %	Fe %	Mg %	S %
schist	0	44	44	7.06	5.69	0.37	3.75	2.42	0.06
felsic	44	50	6	1.42	7.49	0.09	3.80	0.20	0.18
BIF/ graphite	50	55	5	8.55	0.48	3.24	12.11	2.50	0.07
graphitic schist	55	86	**31 **		**1.34 **	0.18	6.60	2.00	**1.07 **
				**14.37 **
felsic	86	94	8	0.47	10.63	1.45	3.74	1.54	0.33
chlorite schist	94	109	15	0.86	8.18	4.61	9.81	4.89	0.46

Table 2. Major chemistry of graphite intervals in CHRC012

As with hole CHRC011 there is little to no carbonate present in the graphitic intervals. CHRC012 intersected two very thick graphite horizons from 0-44m and from 50-86m down hole.

Metallurgical Testwork

Graphite

Samples from the Sugarloaf drilling and hand samples from Campoona South and Council Pit are undergoing metallurgical test work to determine the liberation characteristics and the graphite size and quality. This work is being conducted in the USA. In Adelaide, samples from Sugarloaf are undergoing flotation trials to determine the optimum process flow for extracting the graphite. Results will be reported as they come to hand.

Leigh Creek Magnesite

During 2010, Archer applied for two tenements covering the Leigh Creek magnesite deposits that were formerly owned by Magnesium International Limited. Termination Hill EL 4567 was granted on 20[th] September 2010 giving Archer ownership over high grade magnesite deposits at Mt Hutton, Mt Playfair, Pug Hill and Termination Hill.

Termination Hill EL 4567 JORC Measured, Indicated and Inferred Resources are shown in Table 3 below.

	Termination Hill EL 4567 JORC Magnesite Resources*	Termination Hill EL 4567 JORC Magnesite Resources*	Termination Hill EL 4567 JORC Magnesite Resources*
Area	Measured(Mt)	Indicated(Mt)	Inferred(Mt)	MgO (%)
PugHill		10	10	42.7%
Termination Hill	4	5	20	42.8%
Mt Hutton	18.3	42	53	42.9%
Mt Playfair		11	23	42.5%
Table 3 JORC Magnesite Resources within Termination Hill EL4567

Source: SAMAG Project Report 1999 # Magnesite (MgCO3) has a maximum possible MgO grade of 47.8%

Witchelina ELA 173/10 covering 452km[2] was granted as EL4729 for 2 years during the quarter. The tenement covers the NW extension of the magnesite beds covered by Archer’s Termination Hill EL and hosts the substantial Witchelina magnesite deposit.

	ELA 173/10 Witchelina JORC Magnesite Resources*	ELA 173/10 Witchelina JORC Magnesite Resources*	ELA 173/10 Witchelina JORC Magnesite Resources*
Area	Measured(Mt)	Indicated(Mt)	Inferred(Mt)	MgO (%)
Witchelina	23.7	94	99	40.0%
Table	4 JORC Magnesite	Resources within Witchelina ELA 173/10

*Source: Reproduced from MDL Report “Economic Evaluation of the Pug Hill Magnesite Deposit, North Flinders Ranges, South Australia. 2001. Note full BFS completed and JORC resources for 5 deposits and JORC reserve for Mt Hutton calculated. The independent resource estimates were completed by Mr. Colin Arthur (BSc, MSc, FGS, MAusIMM, CGeol, CEng) Manager, Micromine Resource Centre, August 1999. The estimates were based on 69 fully cored DDHs and all other attendant studies required to support resource and reserve estimation.

During the December 2010 quarter a series of calcining tests were carried out on un-beneficiated run-of-mine magnesite to determine the lower bound quality of magnesia that could be produced from the deposits. Calcining produced highly reactive magnesia grading ≈92% MgO. SiO2 levels at ≥4.5% were too high relative to current marketing specifications for comparable magnesia products.

The Leigh Creek magnesite deposits are World Class in terms of tonnage and grade. Identification of a successful process flow sheet has the potential to unlock the enormous value inherent in the deposits.

An expert consultant metallurgist was contracted to design and oversee the second stage of test work on the deposits. This test work including flotation was tendered and AMDEL appointed to run the test work.

A total of 10 flotation test have been conducted testing a variety of grind sizes and flotation chemicals (frothers and collectors). Thus far the combination of crushing, tumble abrasion and flotation can produce a magnesite (pre-calcining) grading >46% MgO and 2.0% SiO2. The target is to achieve a pre-calcining SiO2 level of <1.5%.

The testing is ongoing with some 12 further tests planned.

Cash balance:

The Company’s cash balance at the end of the quarter was $2.288 million.

For further information please contact:

Mr Greg English Chairman Archer Exploration Limited Tel: (08) 8272 3288

Mr Gerard Anderson Managing Director Archer Exploration Limited Tel: (08) 8272 3288

The exploration results reported herein, insofar as they relate to mineralisation, are based on information compiled by Mr. Wade Bollenhagen, Exploration Manager of Archer Exploration Limited. Mr. Bollenhagen is a Member of the Australasian Institute of Mining and Metallurgy who has more than sixteen years experience in the field of activity being reported. Mr. Bollenhagen consents to the inclusion in the report of matters based on his information in the form and context in which it appears.

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Figure 7. Archer Exploration Tenement Position September 2011.