DIATREME RESOURCES LIMITED — Capital/Financing Update 2017

Nov 29, 2017

==> picture [595 x 211] intentionally omitted <==

ASIAN SILICA SUPPLY DEFICIT

30 November 2017

• Initial reconnaissance drilling completed over southern area of Diatreme’s Cape Bedford Silica/Heavy Minerals Project, Qld

• World-class silica sand province targeted, with potential for heavy minerals also assessed amid emerging Asian silica sand supply deficit

• Plans for additional drilling on high-value targets, at project located near world’s biggest silica sand mine

Targeting a world-class silica province, mineral sands explorer Diatreme Resources Limited (ASX: DRX) announced today the latest drilling and project update on its Cape Bedford Silica/Heavy Minerals Project.

Situated near the world’s largest silica sands mine in North Queensland, Cape Bedford could help satisfy an emerging Asian silica sand supply deficit, with high-purity silica sand becoming an increasingly strategic resource due to its usage in photovoltaic panels and other applications.

Similarly, increasing demand from Asia’s infrastructure and automotive sectors for mineral sands has added to the positive outlook for the project, which is favourably positioned to access these growing markets.

Following the successful conclusion of a Conduct and Compensation Agreement (CCA) with the traditional owners, the Hopevale Congress, Diatreme has conducted an initial reconnaissance exploration program, with the results highlighting the potential for large-scale sand extraction.

Diatreme’s CEO, Neil McIntyre, said: “Cape Bedford is fast emerging as a new supply source of high-quality silica sand and other heavy minerals. We are working closely with the Hopevale Congress, government and other stakeholders to maximise the value of this exciting new project for the benefit of all stakeholders.”

==> picture [43 x 416] intentionally omitted <==

==> picture [4 x 416] intentionally omitted <==

Cape Bedford Project Summary

*** One of the largest high purity silica exploration land packages in Australia, covering an area of 542 sq km in Queensland’s Eastern Cape York region, around 200km north of Cairns**

*** Cape Bedford EPM17795 covers a large Quaternary sand dune field, part of which is currently being mined by Mitsubishi Corporation subsidiary, Cape Flattery Silica Mines Pty Ltd and is the world’s largest silica sand mining operation**

*** Closest proximity high-grade undeveloped project to the world’s largest silica markets in China, Japan, South Korea and Taiwan**

*** High-grade silica used in glass manufacture, foundry casting, electronics, ceramics and construction – industries in demand and growing in developing Asia, with the market expected to expand at a compound annual growth rate of 7.2% through to 2022, reaching revenues of US$9.6 billion (source: IMARC Group)**

MARKET METRICS – SILICA SAND

Silica san d is currently enjoying healthy gr o wth, with a CAGR of nearly 8.7 % in value t e rms from 2 009 to 2016 and a market value of U S$6.3 bil l ion (source: IMARC Group). T his has b e en fuelled by its applicatio n s across a range of industrie s , includin g glass m a king, fou n dry castin g , water fi b ration, chemicals and metal s , along wi t h the hydr a ulic fractu r ing process. IMARC e xpects th e demand f o r silica sand to e x hibit a CA G R of 7.2% through to 2 022, reac h ing reven u es of US$ 9 .6 billion.

==> picture [43 x 415] intentionally omitted <==

==> picture [55 x 415] intentionally omitted <==

==> picture [55 x 415] intentionally omitted <==

==> picture [55 x 415] intentionally omitted <==

==> picture [54 x 415] intentionally omitted <==

==> picture [55 x 415] intentionally omitted <==

==> picture [55 x 415] intentionally omitted <==

==> picture [55 x 415] intentionally omitted <==

==> picture [54 x 415] intentionally omitted <==

==> picture [55 x 415] intentionally omitted <==

----- Start of picture text -----

2
----- End of picture text -----

==> picture [55 x 415] intentionally omitted <==

==> picture [4 x 415] intentionally omitted <==

==> picture [43 x 416] intentionally omitted <==

==> picture [4 x 416] intentionally omitted <==

As one o f the major consumers of high purity sili c a, the glo b al glass m arket ha s recently r ealised significant growth due to incre a sed dema n d from th e construction and au t omotive m arkets, along with expandin g per capita income an d technolo g ical advan c ements.

Currently t here are no direct su b stitutes fo r silica san d in the m a jority of its applicatio n s. As a re s ult, the threat of c o mpetitor products re m ains low. Expanded growth is being enjoyed in the Asian market, especially China, which is s eeing risin g glass manufact u ring in line with construction and infrastructure growth.

Emerging economie s in the Asia-Pacific r e gion also require sp e cialised pl a te glass for double g lazing, with the aim of redu c ing energ y needs. In the Asia-Pacific region alone, d e mand for s ilica sand is seen reaching 1 38 million metric ton n es in 201 8 , constitu t ing some 4 7% of global deman d , ahead o f North America’s 20% and W estern Eu r ope’s 16%.

==> picture [55 x 65] intentionally omitted <==

==> picture [55 x 65] intentionally omitted <==

==> picture [54 x 65] intentionally omitted <==

==> picture [55 x 65] intentionally omitted <==

==> picture [55 x 65] intentionally omitted <==

==> picture [55 x 65] intentionally omitted <==

==> picture [54 x 65] intentionally omitted <==

==> picture [55 x 65] intentionally omitted <==

==> picture [43 x 415] intentionally omitted <==

==> picture [55 x 415] intentionally omitted <==

----- Start of picture text -----

The end
filtration a
----- End of picture text -----

==> picture [55 x 415] intentionally omitted <==

----- Start of picture text -----

cturing,
----- End of picture text -----

==> picture [4 x 415] intentionally omitted <==

The end u ses of sili c a sand in c lude five m ajor mark e ts compri s ing glass, foundry, h y draulic fracturing, filtration a n d abrasiv e s, as show n by the gr a ph below:

==> picture [43 x 416] intentionally omitted <==

==> picture [55 x 416] intentionally omitted <==

----- Start of picture text -----

IMARC e x
----- End of picture text -----

==> picture [55 x 416] intentionally omitted <==

----- Start of picture text -----

pects high growth in
----- End of picture text -----

==> picture [55 x 416] intentionally omitted <==

----- Start of picture text -----

growth in
----- End of picture text -----

==> picture [54 x 416] intentionally omitted <==

----- Start of picture text -----

emand fro
----- End of picture text -----

==> picture [55 x 416] intentionally omitted <==

----- Start of picture text -----

m North A
----- End of picture text -----

==> picture [55 x 416] intentionally omitted <==

----- Start of picture text -----

erica, Latin America
----- End of picture text -----

==> picture [55 x 416] intentionally omitted <==

----- Start of picture text -----

n America
----- End of picture text -----

==> picture [54 x 416] intentionally omitted <==

----- Start of picture text -----

and Western Europe
----- End of picture text -----

==> picture [55 x 416] intentionally omitted <==

----- Start of picture text -----

rn Europe
----- End of picture text -----

==> picture [55 x 416] intentionally omitted <==

----- Start of picture text -----

hrough
----- End of picture text -----

==> picture [4 x 416] intentionally omitted <==

IMARC e x pects high growth in d emand fro m North A m erica, Latin America and Western Europe t hrough to 2022 d u e to incre a sing hydraulic fractur i ng activities that use s ilica sand as a prop p ant, due t o its low cost. Gro w th is also expected t o be drive n by emer g ing markets such as China an d India, where the demand f o r silica sand in the foundry and c o nstruction industries is expected to be high.

==> picture [43 x 415] intentionally omitted <==

==> picture [55 x 415] intentionally omitted <==

----- Start of picture text -----

its low
ere the
around
n ed for
s ilica is
quiring
thering
ndustry
n sand.
aced a
ia.
s rapid
----- End of picture text -----

==> picture [4 x 415] intentionally omitted <==

Overall, it sees the silica sand m arket exp a nding at a CAGR of 4.2% from 2017-202 2 , reaching around 230.6 milli o n tonnes a nd revenu e s of US$9 . 6 billion b y 2022.

MARKET METRICS – CONSTRUCTION SAND

Constructi o n sand i s a major g lobal indu s try, with a n estimat e d 11 billi o n tonnes o f sand mi n ed for constructi o n alone in 2010.

The prim a ry structur a l compon e nt in a ran g e of building and co n struction p roducts, whole-grain s ilica is used in fl o oring co m pounds, r o ofing shin g les, skid- r esistant surfaces an d other ap p lications r e quiring packing d ensity an d flexural s trength. G round sili c a adds d u rability, a n ti-corrosio n and we a thering properties in caulks, e xpoxy-based compounds and s e alants.

Growing A sian mark e ts for con s truction sand include Singapore, where its b uilding construction industry uses an e s timated 1 m illion ton n es of conc r ete per m o nth, including 300,00 0 tonnes of construction sand. Importantl y for Aust r alian suppliers, the S ingapore B uilding and Constru c tion Auth o rity has placed a requirement that 5% o f construc t ion sand b e sourced from non-tr a ditional so u rces inclu d ing Austra l ia.

Other Asi a n emergi n g markets are also s howing growth, including in In d ia, where the nation’s rapid industriali s ation has raised dem a nd for con s truction sand.

Vietnam is also seeing significant growth, having changed from an exporter to an importer of industrial sand thanks to its recent building boom, with estimates by its construction ministry that it could run out of domestic supply by 2020.

Further demand growth is likely given UN estimates that there will be more than 40 “megacities” home to more than 10 million inhabitants by 2030, up from 31 in 2016, resulting in more demand for housing and infrastructure, and thereby mineral sands.

EXPLORATION OVERVIEW – CAPE BEDFORD

The Cape Bedford EPM17795 is located approximately 200km north of Cairns in North Queensland, and covers the extent of a large Quaternary sand dune field, part of which is currently being mined by Cape Flattery Silica Mines Pty Ltd (CFSM), a wholly owned subsidiary of Mitsubishi Corporation. Cape Flattery has operated since 1967 and is the world's largest silica sand mining operation.

The Cape Bedford / Cape Flattery region of north Queensland is dominated by an extensive Quaternary sand mass and dune field that stretches inland from the present coast for approximately 10km and extends 50km from north to south.

==> picture [584 x 415] intentionally omitted <==

----- Start of picture text -----

5
----- End of picture text -----

==> picture [43 x 416] intentionally omitted <==

==> picture [55 x 416] intentionally omitted <==

==> picture [55 x 416] intentionally omitted <==

==> picture [55 x 416] intentionally omitted <==

==> picture [54 x 416] intentionally omitted <==

==> picture [55 x 416] intentionally omitted <==

==> picture [55 x 416] intentionally omitted <==

==> picture [55 x 416] intentionally omitted <==

==> picture [54 x 416] intentionally omitted <==

==> picture [55 x 416] intentionally omitted <==

==> picture [55 x 416] intentionally omitted <==

==> picture [4 x 416] intentionally omitted <==

==> picture [43 x 415] intentionally omitted <==

==> picture [4 x 415] intentionally omitted <==

Historical exploration has focu s ed on the Cape Flat t ery area, w ithin the M ining Lea s es of CF S M, but reconnais s ance expl o ration has been carri e d out over the entire d une field i n the late 1960's and a gain in the early 1 980's. Thi s explorati o n confirm e d the pres e nce of bo t h silica sa n d and he a vy mineral sands, and Diatr e me intend s to build o n the existi n g data an d initially target those a reas (e.g. Nob Point ) where prospecti v e silica sa n d dunes h a ve been id e ntified an d access is readily ava i lable.

The comp a ny execut e d a Cond u ct and Co m pensatio n Agreeme n t (CCA) in January 2 0 17, and a C ultural Heritage A greement (CHA) in J u ne 2017 w ith the tra d itional ow n ers, the Hopevale C o ngress. T h e CCA allows ac c ess for gr o und distur b ing explo r ation activity and ensures the tr a ditional o w ners shar e in the potential e conomic b e nefits of t h is new pr o ject, while the CHA sets out the protocol f o r cultural h eritage issues. C u ltural herit a ge surveys for the fi r st propos e d exploration progra m were un d ertaken in August and subs e quent expl o ration acc e ss grante d in September 2017.

Reconnaissance Exploration – September 2017

Following the proces s defined by the CHA, Diatreme a ssisted wi t h a Cultur a l Heritage survey in A ugust 2017 ove r the propo s ed recon n aissance e xploration area in th e Nob Poin t to Elim B each area in the

southern part of EPM17795. A reconnaissance exploration program was subsequently approved, and Diatreme commenced exploration in September 2017 utilising a Company-owned and operated air-core drilling rig. Reconnaissance drilling was planned alongside established roads and tracks, with line clearing and reconnaissance drilling also planned over a dune system in the southern part of the EPM.

The exploration program was developed based upon encouraging results from historical exploration in the 1970’s and 1980’s (although this was itself reconnaissance in nature), encouraging observations from Diatreme’s site visits, and the ease of access due to several roads and tracks traversing the area.

During September, 29 holes were drilled along Elim Road and a related beach access track, for a total of 606m with an average hole depth of 21m. The logged geology was reasonably consistent in defining large areas of fine grained quartz sand, but sand colour was variable, with a variety of coloured sands particularly apparent towards Elim Beach. This is not surprising, as Elim Beach itself is known for its exposures of eroded high dune cliffs displaying “coloured sands”.

The beach access track runs alongside a broad elongate swamp, and holes drilled here encountered quartz sands with a shallow water table (~3m) and typically white sands on surface and tannin stained light brown to brown sands below water table.

Holes drilled along the central part of the Elim Road returned good thicknesses of fine grained white quartz sands from surface, and assay results support the logging with an average 99% SiO2 reported for the samples submitted for analysis.

A table of summary XRF assay results is presented below:

Hole_ID	East	North	RL	From	To	Int.	SiO2	Al2O3	Fe2O3	TiO2	LOI
	UTM Zone55L GDA			m	m	m	%	%	%	%	%
CB013	314743	8308688	18	0	12	12	99.04	0.09	0.05	0.08	0.16
CB024	314094	8309126	18	0	18	18	98.67	0.06	0.07	0.14	0.13
CB025	313869	8309318	22	0	18	18	98.89	0.09	0.08	0.14	0.14
CB026	313400	8309518	20	0	24	24	98.80	0.08	0.08	0.12	0.14
CB028	312094	8310134	29	0	18	18	98.99	0.08	0.08	0.15	0.09
CB029	311605	8310207	36	0	15	15	98.82	0.10	0.08	0.12	0.20

The assay results are considered highly encouraging in light of the fact they are as-drilled samples, with no sample preparation (e.g. washing, HM removal) as would typically be carried out for silica sands. Minor amounts of HM (ilmenite dominant) were observed during logging, as evidenced by the iron and titanium assay results reported.

Also note that CB027 was not initially submitted for analysis as it displayed a light brown sand layer with minor root material (interpreted as a paleo topsoil horizon) at 6m depth, disrupting the white sand profile which was present from surface to 18m in that hole. Samples from CB027 have now been lodged for analysis with assay results pending.

Widespread, but low-grade HM mineralisation was observed in most of the roadside reconnaissance drilling, with a visual estimate of background HM grades averaging around 0.3% for the drilled areas. However, some holes showed higher levels of HM in visual logging, and 60 samples were submitted for HM analysis to assess the economic potential of the observed HM. Significant results are shown below:

Hole_ID	East	North	RL	From	To	Int.	HM	Slime
	UTM Zone55L GDA			m	m	m	%	%
CB014	314809	8308933	23	12	18	6	0.8	3.6
CB016	315015	8309415	27	0	24	24	1.0	2.6
	including
CB016	315015	8309415	27	15	24	9	1.8	4.0
CB028	312094	8310134	29	18	24	6	1.1	5.3

The HM mineralisation observed to date confirms the presence of HM in the region and the potential of the area to host mineralisation, but is not considered to be economically significant within the area currently being explored.

==> picture [407 x 214] intentionally omitted <==

Drilling along beach access track, September 2017

Reconnaissance Exploration – October 2017

During October, 26 holes were drilled along cleared access tracks over a dune complex near Nob Point, for a total of 670m with an average hole depth of 26m. The logged geology was reasonably consistent in defining large areas of fine grained quartz sand, but sand colour was variable throughout the drilled area of the dune system, suggesting a complex depositional (and erosional) history for the dune complex.

Several large zones of white, fine grained quartz sand extending over 400m in length along the dune ridges were evident from surface down to 30m depth, and although these do not form a continuous body of white sand along the entire length of the dune ridges that were drilled, they do have potential to represent a body of sand with sufficient size that may allow large scale sand extraction for commercial purposes. Analytical results are awaited to confirm the economic potential.

Drilling on dune feature in Nob point area, October 2017

==> picture [393 x 390] intentionally omitted <==

Drill hole collars overlain on Google Earth – blue line EPM

==> picture [584 x 416] intentionally omitted <==

Drill hole collars overlain on 5m topographic contour data – blue line EPM, grey line road

The reconnaissance air-core drilling has allowed a general understanding of the dune geology, and returned results that confirm both the exploration potential of a significant silica sand deposit in the area, together with more localised occurrences of HM mineralisation.

Technical information relating to the reconnaissance exploration program has been previously presented as a JORC 2012 Table 1 appendix attached to the DRX quarterly activities report released to the ASX on 24 October 2017.

Detailed Sample Analysis Pending

Drill samples (76) from the October drilling program have been submitted to the laboratory for XRF analysis for silica and assay results are expected within 2-3 weeks.

Bulk samples of approximately 100kg each from six separate drill holes have been submitted for preliminary metallurgical testwork to assess the potential to generate a high-quality silica sand product from the white quartz sands intersected from the October drilling program. Unfortunately, due to the high work load in the laboratory test facility, results from this work are not expected to be available until January 2018.

==> picture [43 x 416] intentionally omitted <==

==> picture [43 x 415] intentionally omitted <==

==> picture [55 x 416] intentionally omitted <==

----- Start of picture text -----

n e the
sand.
s as it
w ith a
tation
given
n g, no
elated
ng for
of the
being
----- End of picture text -----

==> picture [4 x 416] intentionally omitted <==

Samples h ave been s ubmitted t o a special i st laboratory to com m ence a se r ies of tests to determi n e the characteri s tics of th e Nob Point dune sa n d and assess its potential for u se as a c o nstruction sand. Results ar e awaited.

Diatreme l ooks forw a rd to upda t ing the market as tes t results ar e obtained o ver the c o ming wee k s as it seeks to f u rther defin e the silica resource w ithin the current explo r ation area.

Proposed Exploration Drilling – Southern Area

Planning f or the ne x t stage o f explorati o n drilling i n the sou t hern EPM area is u nderway, w ith a vegetatio n survey planned for December 2017 to a ssess the presence of a threatened veg e tation species w i thin the N W extensio n of the No b Point dun e s drilled in October.

Approvals for explor a tion drillin g will be dependent u p on the res u lts of the v egetation s urvey, bu t given the timeli n e for the v e getation s u rvey, rep o rting and subsequent application s for veget a tion cleari n g, no further drilling is likel y until after t he tropical wet seaso n (late in Q 1 of 2018)

Compilati o n of the reconnaiss a nce data t ogether w i th a high- r esolution s atellite im a ge (and r elated topographic data processing) that was ac q uired in S e ptember 2017, will f a cilitate det a iled plann i ng for the next s t ages of ex p loration.

Proposed Exploration Drilling - Regional

During 20 1 8, Diatre m e intends to carry out regional r e connaissa n ce drilling o ver acces s ible areas of the EPM. Thi s propose d explorati o n will be subject to appropria t e (cultural heritage) approvals being obtained f r om Hopev a le Congre s s to proce e d with ex p loration activity.

==> picture [55 x 415] intentionally omitted <==

----- Start of picture text -----

ration,
als for
ord is
rising
silica,
g our
----- End of picture text -----

==> picture [4 x 415] intentionally omitted <==

Diatreme h as identifi e d numero u s areas o f interest for both silic a sands an d mineral sands exploration, and will w o rk with Hopevale Co n gress and g overnment departments to gain a ny neces s ary appro v als for the explor a tion progr a m to be fu r ther expanded.

Summarising the C o mpany’s l a test progr e ss at Ca p e Bedford, Mr McIn ty re said: “Cape Bed f ord is perfectly p laced to tap into fast- g rowing A s ian market s amid an e nvironme n t of falling supply and rising prices. W e see gre a t potential for this pr o ject to become a si g nificant pr o ducer of h igh-grade silica, adding to the Com p any’s flag s hip Cyclo n e Zircon P roject in W estern A u stralia an d cementi n g our position a s a leading emerging m ineral san d s miner in Australia.”

For furthe r informatio n , please c o ntact:

Neil McInt y re, CEO

Competent Person Statement

The information in this report, insofar as it relates to Exploration Results is based on information compiled by Mr Ian Reudavey, who is a full time employee of Diatreme Resources Limited and a Member of the Australian Institute of Geoscientists. Mr Reudavey has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he has undertaken to qualify as a Competent Person as defined in the 2012 Edition of ‘The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Reudavey consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

==> picture [584 x 415] intentionally omitted <==

----- Start of picture text -----

12
----- End of picture text -----