CARNAVALE RESOURCES LIMITED — Interim / Quarterly Report 2008

Jan 29, 2009

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QUARTERLY ACTIVITY REPORT For the period ended 31 December 2008

HIGHLIGHTS

Parmegiana Iron Ore Project

• Entered into an agreement with Brazilian major Companhia Vale Do Rio Doce (Vale) with regard to the Company’s Parmegiana Iron Ore project in Brazil.

Frei Martinho Molybdenum Projects

• The Company has withdrawn from these projects in view of current market conditions and indications that the projects had limited potential for a short term discovery of an economic deposit.

Corporate

• The Company completed a detailed due diligence evaluation on an advanced coal mining project and decided not to proceed.

• The Company is currently investigating several advanced mineral project opportunities located in various countries with a view of expanding its asset portfolio.

• The Company has approximate cash reserves of AUD $11,663,000 at the end of the quarter. Subsequent to quarter end, Carnavale has paid US $900,000 (approximately AUD $1,400,000) to the vendor of the Parmegiana Project, Tau Capital, having amended its original agreement.

• The Company has an approximate cash backing of 16 cents per share undiluted after taking into account the payment above.

CARNAVALE RESOURCES LIMITED ABN 49 119 450 243 30 Ledgar Road, Balcatta Western Australia 6021 T: +61 8 9240 6876 F: +61 8 9240 2406 E: admin @carnavaleresources.com W: www.carnavaleresources.com

Parmegiana Iron Ore Project

Carnavale) entered into an agreement with Brazilian major Companhia Vale Do Rio Doce (Vale) with regard to the Company’s Parmegiana Iron Ore project in Brazil.

Vale has been granted exclusive exploration rights over the Parmegiana property for a period of up to 44 months, during which time it is expected that Vale will conduct resource drilling. The key terms of the agreement are as follows:

Carnavale has received an initial non refundable fee of US$2 million from Vale upon commencement of the agreement. For a period of 20 months, Vale will carry out regional works including exploration drilling to evaluate the iron ore potential of the Project area. Thereafter, in order to continue exploration, Vale is required to make a payment of US$8 million to Carnavale. This 2nd phase will run for a period of 24 months, wherein detailed exploration work will be conducted including resource drilling. Vale may withdraw from the agreement at any time.

At the end of the 2nd phase, Vale has the right to acquire sole ownership of the Parmegiana Project. The purchase price payable by Vale will be by reference to the in-situ reserves determined during the resource drilling stage. An acquisition price of between US$0.20 and US$0.70 per metric tonne will be paid based on the type of ore. These prices are subject to prorata adjustment based on the movement in market prices relative to current prices. In the event that Vale exercises its right to acquire the project, the payment of US$ 10 million by it will be credited against the acquisition price.

As a result of this agreement with Vale, Carnavale has amended its original agreement with the vendor of the Parmegiana Project, Tau Capital (Tau). Tau has been paid US$900,000 by Carnavale from the proceeds of the initial fee of US$2 million received from Vale. If Vale proceeds to the 2nd phase, Carnavale will be required to pay US$2.2 million to Tau from the 2nd stage receipt of US$8 million from Vale. In the event that Vale acquires the project, Carnavale will be required to pay Tau between US$0.12 and US$0.24 per metric tonne based on the type of ore, with a corresponding credit for the advance payments of US$3.1 million.

Frei Martinho Project

The ground geophysical IP anomalies interpreted to be associated with disseminated copper sulphide minerals hosted in the quartz-sericite unit were intercepted by the drilling at target position, but they intercepted a zone with fine disseminated oxide black mineral in the quartzsericite-schist, instead of the expected copper sulphide minerals, without any significant value for Cu, Au or Mo.

The drill holes performed failed to prove the presence of Cu mineralization at depth beyond its widespread surface occurrences, in fractures and pegmatite veins as well as in the amphibolite rich unit at the quartz-sericite schist/biotite-schist contact.

Due to the current environment, the early stage of the project and the level of future cash payments necessary to maintain the project in good standing, the Company made the decision to withdraw from this project.

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Ron Gajewski Executive Director

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For further information in respect of Carnavale please contact:

Ron Gajewski	Klaus Eckhof
Director	Director
Tel:+61 8 9240 6876	Tel:+61 411148209
Email: gajewskir@crcpl.com.au	Email: eckhofk@crcpl.com.au

Carnavale Resources website: www.carnavaleresources.com.au.

Scientific or technical information in this news release has been prepared under the supervision of Mr Klaus Eckhof, a Technical Director of the Company and a member of the Australasian Institute of Mining and Metallurgy (AusIMM). Mr Eckhof has sufficient experience which is relevant to the style of mineralisation under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (the JORC Code). Mr Eckhof consents to the inclusion in this report of the Information, in the form and context in which it appears.

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Appendix 5B Mining exploration entity quarterly report

Appendix 5B

Mining exploration entity quarterly report

Name of entity

CARNAVALE RESOURCES LIMITED
ABN 49 119 450 243 Consolidated statement of cash flows		Quarter ended (“current quarter”)
		31 December 2008
Cash flows related to operating activities 1.1 Receipts from product sales and related debtors 1.2 Payments for (a) exploration and evaluation (b) development (c) production (d) administration 1.3 Dividends received 1.4 Interest and other items of a similar nature received 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Other – new project due diligence costs Net Operating Cash Flows		Current quarter $A’000	Year to date (6 months) $A’000
		- (403) - - (325) - 140 - - (149)	- (856) - - (614) - 327 - - (249)
		(737)	(1,392)
Cash flows related to investing activities 1.8 Payment for purchase or renewal of: (a) prospects (b) equity investments (c) other fixed assets 1.9 Proceeds from sale of: (a) prospects (b) equity investments (c) other fixed assets 1.10 Loans repaid to other entities 1.11 Loans repaid by other entities 1.12 Other – Option fee received 1.12 Other – Commissions paid Net investing cash flows** 1.13 Total operating and investing cash flows (carried forward)		- - (1) - - - - - 3,109 (155)	(326) - (5) - - - - - 3,109 (155)
		2,953	2,623
		2,216	1,231

** Carnavale has received an initial non refundable fee of US$2 million from Vale (AUD $3.1 million) as a result of Vale being granted exclusive exploration rights over the Parmegiana property for a period of up to 44 months.

As a result of this agreement with Vale, Carnavale has amended its original agreement with the vendor of the Parmegiana Project, Tau Capital (Tau). Tau has been paid US$900,000 in January 2009 from the proceeds of the initial fee of US$2 million received.

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Appendix 5B Mining exploration entity quarterly report

1.13 Total operating and investing cash flows (brought forward)	2,216	1,231
Cash flows related to financing activities 1.14 Proceeds from issues of shares, options, etc. 1.15 Proceeds from sale of forfeited shares 1.16 Proceeds from borrowings 1.17 Repayment of borrowings 1.18 Dividends paid 1.19 Other – share issue expenses Net financing cash flows	- - - - - -	- - - - - -
	-	-
Net increase (decrease) in cash held 1.20 Cash at beginning of quarter/year to date 1.21 Exchange rate adjustments to item 1.20 1.22 Cash at end of quarter	2,216 9,640 (193)	1,231 10,612 (180)
	11,663	11,663

Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities

Payments to related entities of the entity and associates of the	related entities
1.23 Aggregate amount of payments to the parties included in item 1.2 1.24 Aggregate amount of loans to the parties included in item 1.10	Current quarter $A'000
	173
	-

1.25	Explanation necessaryfor anunderstanding of thetransactions
	A$’000 Directors fees, consultancy charges and remuneration 128 Accounting ,secretarial and legal expenses 45

Non-cash financing and investing activities

• 2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows

N/A.

• 2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest

N/A

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Appendix 5B Mining exploration entity quarterly report

Financing facilities available

Add notes as necessary for an understanding of the position.

3.1 Loan facilities 3.2 Credit standby arrangements	Amount available $A’000	Amount used $A’000
	-	-
	-	-

Estimated cash outflows for next quarter

Estimated cash outflows for next quarter
4.1 Exploration and evaluation 4.2 Development	$A’000
	200
	-
Total	200

Reconciliation of cash

Reconciliation of cash
Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows.	Current quarter $A’000	Previous quarter $A’000
5.1 Cash on hand and at bank 5.2 Deposits at call 5.3 Bank overdraft 5.4 Other (provide details)	2,851 8,812 - -	49
		9,591
		-
		-
Total: cash at end of quarter(item 1.22)	11,663	9,640

Changes in interests in mining tenements

ining tenements
Tenement reference	Nature of interest	Interest at beginning ofquarter	Interest at end of quarter
Frei Martinho 848.195/04, 848.196/04, 848.014/05, 848.031/07, 848.032/07, 848.033/07, 848.086/08	Granted licences	100%	Nil

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Appendix 5B Mining exploration entity quarterly report

Issued and quoted securities at end of current quarter

Description includes rate of interest and any redemption or conversion rights together with prices and dates.

	Total number	Number quoted	Issue price per security (cents)	Amount paid up persecurity (cents)
7.1 Preference +securities (description) 7.2 Changes during quarter	-	-	-	-
	-	-	-	-
7.3 +Ordinary securities 7.4 Changes during quarter	63,948,221	51,693,221
7.5 +Convertible debt securities (description) 7.6 Changes during quarter	-	-	-	-
	-	-	-	-
7.7 Options (description and conversion factor) 7.8 Issued during quarter 7.9 Exercised during quarter 7.10 Cancelled/Expired during quarter	53,686,854	53,686,854	Exercise price 20 cents	Expiry date 30/06/2009
	-	-	-	-
	-	-	-	-
	-
7.11 Debentures (totals only)	-	-
7.12 Unsecured notes (totals only)	-	-

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Appendix 5B Mining exploration entity quarterly report

Compliance statement

• 1 This statement has been prepared under accounting policies, which comply with accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 4).

• 2 This statement gives a true and fair view of the matters disclosed.

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Sign here: Date: 30 January 2009 Print name: Paul Jurman Company Secretary

Notes

1 The quarterly report provides a basis for informing the market how the entity’s activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.

2 The “Nature of interest” (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2.

3 Issued and quoted securities. The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities .

4 The definitions in, and provisions of, AASB 1022: Accounting for Extractive Industries and AASB 1026: Statement of Cash Flows apply to this report.

5 Accounting Standards ASX will accept, for example, the use of International Accounting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.

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