ARCHER MATERIALS LIMITED — Interim / Quarterly Report 2012

Jul 23, 2012

24[th] July 2012

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Quarterly Activities Report For the period ended 30[th] June 2012

HIGHLIGHTS FOR THE QUARTER

EXPLORATION

GRAPHITE

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• Resource drilling totalling 27 RC drill holes for 2,387 metres was completed in two drill programmes at the high grade Campoona Shaft area of the Campoona graphite deposit during the Quarter. Drilling has resulted in a nominal 50m x 20m drill coverage.

• Diamond drilling at Campoona Shaft commenced on 27[th] June 2012 with the first hole (in progress) intersecting intense graphite mineralisation from 24m. Six diamond drill holes will provide samples across the length, breadth and depth of the deposit for metallurgical test work.

• Resource drilling at Campoona Shaft is scheduled to be completed by mid-August 2012. A JORC Measured and Indicated Resource is planned for the December quarter. Resource drilling at Central Campoona will commence once the 2012 harvest has been completed.

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• Concentrates grading 95%TGC (Medium Flake), 96%TGC (Fine Flake) and 97%TGC (Amorphous) were produced from RC drill samples from RC drill holes into the Campoona graphite deposit.

MAGNESITE

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• Test work continued on samples of Leigh Creek magnesite. Calcining of HPGR samples produced high grade magnesia grading >95% MgO and ≈2.5% SiO2.

BUSINESS DEVELOPMENT

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• Archer completed the Sale of five West Roxby tenements to BHP Billiton Olympic Dam Corporation Pty Ltd on 22[nd] June 2012 for a cash consideration of $8 million.

• During the Quarter Archer completed a placement of 10 million shares at $0.30/share to sophisticated investors and completed a SPP capped at 5 million shares at $0.30/share.

FINANCIAL

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• Cash in bank on 30[th] June 2012 of $12.75 million.

• $671,000 spent on exploration during the quarter.

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Summary of the June 2012 Quarter Exploration Activities

1. Graphite Exploration

Campoona Graphite Deposit

DRILLING

Two drill programmes were completed at Archer’s high priority Campoona Graphite Deposit during the Quarter.

Nine RC aircore drill holes were completed in April to test the Campoona graphite deposit north beyond the Campoona South outcrop.

A second larger Resource Definition programme of RC and diamond drilling targeting the Campoona Shaft area of the deposit commenced in May 2012 and was still in progress at Quarter’s end. 18 drill holes of the second programme were completed for 2,001m.

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Archer’s Cleve Uplands
graphite project area
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Figure 1. Location of Archer’s Cleve graphite projects

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The Resource drilling has been a resounding success demonstrating a thick sub-vertical zone of intense high grade graphite mineralisation carrying visible flake graphite.

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Figure 2. Plan view of Campoona Graphite Deposit showing drill collar locations prior to current RC and diamond drilling Resource Definition drilling programme. Campoona Shaft area is highlighted.

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Figure 3. Planned drill locations for the current and final phase of Resource Drilling at Campoona Shaft

Key observations from the Resource drilling are:

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• The high grade intersections carry visible flake graphite.

• The discrete intense graphitic schist is hosted within graphitic proto-gneiss formed under metamorphic conditions (temperature and pressure) important for the development of crystalline graphite.

• There appears to be little to no silicification of the graphite in both the Campoona Shaft area and the Central Campoona area. The absence of silicification is considered important for the liberation of graphite during comminution and mineral flotation.

• The drilling has recorded significant widths of high grade graphite indicating that the unit thickens to a maximum true width exceeding 40m. The hangingwall section is particularly high in grade averaging over 15% graphitic carbon and carrying visible flake.

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• The variation in thickness of the graphitic schist suggests “pinching and swelling” along strike and down dip. Small rafts ( boudins ) of less deformed graphitic gneiss occur within the highly foliated graphitic schist.

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• The graphite unit outcrops, dips sub-vertically and extends continuously to a vertical depth of at least 100m.

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• The weathering profile consists of complete weathering to at least 60 vertical metres below surface. From 60m the weathering remains strong to at least 80-100m.

• The presence of deep and intense weathering has resulted in a high degree of liberation of the graphite from the gangue minerals.

• Field observations indicate the thick graphitic unit extends well north of the Campoona Shaft.

• The graphitic schist is an expression of a regional shear zone that may be up to 30 kilometres in length. The current detailed airborne EM survey is expected to provide high quality data enabling the identification of similar “pods” of graphite to Campoona Shaft and Central Campoona. Drilling between Campoona Shaft and Central Campoona is likely to identify fault offset pods of graphite.

Results received to date from the Resource drilling program are consistent with the previous exploration programs and reinforce the Company’s confidence in the Campoona Graphite deposit. The section 27m @ 18.5%TGC in hole CSRC12_041 is the highest grade intercept recorded in drilling to date at the project.

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Figure 4. Campoona Shaft interpreted graphite horizons

Campoona graphite intervals received during the June 2012 Quarter are;

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CSRC12_008 38m @ 8.6%TGC from 0m downhole including 22m @ 10.3%TGC from 8m

CSRC12_009 67m @ 10.1%TGC from 0m downhole including 25m @ 13.2%TGC from 0m

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• CSRC12_010 48m @ 12.5%TGC from 24m downhole including 20m @ 16.5%TGC from 46m

• CSRC12_011 3m @ 6.2%TGC from 0m downhole and 6m @ 8.0%TGC from 6m

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• CSRC12_012 23m @ 11.4%TGC from 0m downhole including 16m @ 12.9%TGC from 1m and 4m @ 10.4%TGC from 28m

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• CSRC12_013 24m @ 10.0%TGC from 21m downhole including 10m @ 12.5%TGC from 25m and 4m @ 11.8%TGC from 50m

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• CSRC12_014 15m @ 10.2%TGC from 75m downhole including 8m @ 11.7%TGC from 79m

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• CSRC12_015 3m @ 10.6%TGC from 0m downhole and 2m @ 11.6%TGC from 12m

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• CSRC12_016 11m @ 10.8%TGC from 62m downhole

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• CSRC12_041 64m @ 11.8%TGC from 54m downhole including 27m @ 18.5%TGC from 60m

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• CSRC12_042 46m @ 9.3%TGC from 29m downhole including 20m @ 13.3%TGC from 31m

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• CSRC12_048 56m @ 10.6%TGC from 11mm downhole including 28m @ 17.1%TGC from 18m

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• CSRC12_050 32m @ 9.3%TGC from 30m downhole including 18m @ 12.8%TGC from 33m, and 11m @ 8.3%TGC from 70m

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• CSRC12_053 47m @ 6.7%TGC from 32m downhole including 14m @ 10.6%TGC from 61m

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• CSRC12_061 29m @ 9.7%TGC from 0m downhole including 11m @ 12.2%TGC from 1m, and 26m @ 6.3%TGC from 75m including 9m @ 9.4%TGC from 76m

In addition to RC drilling, Archer has commenced diamond drilling program designed to recover HQ samples over the entire profile of the deposit from the weathered surface material through to fresh rock. The drill core will provide quality samples for further metallurgical test work to investigate the product types and product quality able to be recovered from different levels within the deposit. The results will be used in the estimation of JORC Reserves.

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Plate1. RC Drilling hole at CSRC12_045

The HQ diamond drill holes commenced on 27[th] June 2012 over the Campoona Shaft.

The first diamond drill hole, CSDD12_003, drilled at -80[o] on an azimuth of 120[o] was in progress and had intersected intense graphite mineralisation from 24m downhole.

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Plate 2. Photo showing diamond drilling in progress for hole CSDD12_003

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Plate 3. HQ drill core of highly graphitic schist in hole CSDD12_003

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Plate 4. Drill sump prepared for diamond drill hole CSDD12_003 showing thin overburden overlying intense graphite mineralisation.

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Plate 5. Close up of the drill sump for diamond drill hole CSDD12_003 showing intense graphite mineralisation.

The diamond drill program is expected to be completed by mid-August 2012.

METALLURGY

Composite samples from Campoona RC drill holes produced large, medium and fine flake with most in the medium and fine flake range.

• Medium Flake grading 95%TGC

• Fine Flake grading 96%TGC

• Amorphous graphite grading to 97%TGC

These results are very encouraging. The Company believes that further optimization of product quality is highly likely.

Attention will be directed at retrieving representative samples from the current HQ diamond drilling program and the drill sumps to investigate the average metallurgical performance across the length, breadth and depth of Campoona Shaft body so that JORC Reserves can be calculated to support a future Mine Lease Proposal.

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Plate 6. QEMSCAN image of Campoona flake graphite

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Plate 7. CSRC12_003 +212µm fraction showing large flake

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Plate 8. CSRC12_003 +150µm fraction showing medium flake

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Plate 9. CSRC12_003 +106µm fraction showing fine flake

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EXPLORATION TARGET

Exploration Target – Tonnage*

Drilling results at Campoona Shaft from the drilling campaigns confirmed that the graphitic-rich body consists of a discrete intense graphitic shear zone hosted in low grade graphitic proto-gneiss (high grade metamorphosed sediments). The high grade graphite unit averaged 10-40m in true width with the hangingwall section particularly high grade averaging over 15% graphitic carbon and carrying visible flake. The drilling showed the graphite to extend to a vertical depth of at least 100m and there were no signs of thinning at depth. Drilling results are limited to a strike length of 600 metres however the deposit remains open along strike to the north. No density measurements have been conducted at this time but given the composition of the unit it is reasonable to ascribe a density of 2.2gm/cc.

The lower bound exploration potential assuming a strike length of 600m, an average width of 25m, a down-dip extent of 100m is estimated at 3Mt.

The upper bound exploration target assumed a strike of 600m (despite the deposit being open to the north) and a vertical extent to the deposit of 150m is estimated at 5Mt.

Central Campoona has the same overall geology however the intense graphitic unit is narrower averaging 10m in true width. Drilling results are limited to a strike length of 1,400 metres however the deposit remains open along strike to the south. The lower bound exploration potential assuming a strike length of 1,400m an average width of 10m, a down-dip extent of 100m and a specific gravity of 2.2gm/cc is estimated at 3Mt.

The upper bound exploration target assumed a strike of 1,400m (despite the deposit being open to the south) and a vertical extent to the deposit of 150m is estimated at 5Mt.

Exploration Target – Grade*

At Campoona Shaft the arithmetic average of the graphitic schist in the 10 holes completed to date (sample size n=267; x 11.0%TGC) is 10-12%TGC. A lower grade cut-off of 5%TGC was used.

At Central Campoona the arithmetic average of the graphitic schist in the 6 holes completed to date (sample size n=72; x 12.4%TGC) is 11-13%TGC. A lower grade cut-off of 5%TGC was used.

The depth of oxidation at both areas is approximately 80m vertically below surface corresponding with the current water table.

*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

GEOPHYSICS

The airborne EM survey commenced but was postponed due to equipment malfunction. The survey is expected to recommence on the 18[th] July 2012 and be completed within 7-10 days.

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2. Leigh Creek Magnesite Deposit

A sample of magnesite from Mt Hutton was crushed using staged rolls crushing to determine whether removal of talc can be achieved effectively through progressive crushing. Calcining of the rolls crushed sample delivered high grade magnesia grading >95% MgO and ≈2.5% SiO2. The results clearly demonstrate that high grade magnesia can be produced via a comparatively simple low-cost process.

3. Tenements

Granted

EL 4893 (Cleve West) was granted on the 24[th] May 2012 for a period of 2 years. This tenement was applied for due to its graphite prospectivity in relation to the Campoona structure and its granting has increased Archer’s “graphite” tenements to 918km[2] .

Relinquished

EL 4201 and EL 4202 were relinquished during the quarter due to limited prospectivity and the Company’s immediate focus on graphite.

4. Business Development

West Roxby Tenement Sale to BHPBilliton Olympic Dam Corporation Pty Ltd

Archer completed the Sale of its five West Roxby tenements to BHP Billiton Olympic Dam Corporation Pty Ltd on 22[nd] June for a cash consideration of $8 million.

Share Placement and SPP

Archer completed a placement of 10 million shares at $0.30/share to sophisticated investors and completed a capped SPP of 5 million shares at $0.30/share. The SPP was oversubscribed and required scale back.

5. CASH BALANCE

The Company’s cash balance at the end of the quarter was $12.75 million.

6. ACTIVITIES FOR SEPTEMBER QUARTER

Resource drilling at Campoona Shaft is scheduled to be completed by mid-August 2012 with the aim of completing sufficient drilling to support a JORC Measured and Indicated Resource expected in the December quarter.

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Resource estimation for Campoona Shaft will commence on receipt of the outstanding assays.

On completion of the diamond drill programme at Campoona Shaft, domained samples including samples from the surface drill sumps, will be submitted for metallurgical evaluation.

Diamond drilling will be completed at Sugarloaf graphite deposit.

The postponed airborne EM survey at Campoona will be completed and the data interpreted to develop new drill targets.

Non-graphite exploration is planned to include airborne EM survey at Archer’s Burra copper targets at the Mimic and Robertstown prospects.

For further information please contact:

Mr Greg English Mr Gerard Anderson Chairman Managing Director Archer Exploration Limited Archer Exploration Limited Tel: (08) 8272 3288 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 eighteen 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 5. Archer Exploration Tenement Position 30 June 2012

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