DIATREME RESOURCES LIMITED - Capital/Financing Update 2018

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ASX ANNOUNCEMENT

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15 November 2 0 18

Positive DFS confirms Cyclone’s potential as new zircon mine

Highlights:

Cyclone Zircon Project’s potential as profitable new WA zircon mine confirmed by Definitive Feasibility Study (DFS) results, undertaken by China ENFI Engineering Corporation (ENFI)
Positive after‐tax financial results, including estimated net present value (NPV) of AUD$113 million, internal rate of return (IRR) of 27% and capital payback (post‐production) in the first 2.7 years of a life of mine (LOM) estimate of 13.2 years
Capital cost slashed to AUD$135m, a significant reduction on the previous independent estimate in 2016
LOM production of 1.94 million tonnes (Mt) of heavy mineral concentrate (HMC), containing 936 kilotonne (kt) zircon, producing 772kt of zircon final product
ENFI, part of major Chinese mining group China Minmetals, formally endorses the Cyclone project and recommends immediate development.

Emerging miner a l sands min e r Diatreme Resources L imited (ASX : DRX) announced today p ositive res u lts from the Defi n itive Feasi b ility Study ( D FS) for its flagship Cycl o ne Zircon P r oject, whic h have slash e d the proje c t’s estimated capi t al expendit u re and reaf f irmed its p o tential prof i tability ami d growing d e mand for hi g h‐grade zir c on.

Sign i ficantly, the results poi n t to a potentially highly profitable n e w project l o cated in th e world‐clas s Eucla Basin of Western Austral i a that will generate ne w jobs, inves t ment and w ealth for all stakeholde r s, including t he traditio n al owners. Cyclone is one of only three sig n ificant zirco n ‐dominant discoveries o f the past d ecade, high l ighting the lack of high‐grade su p ply, with strong demand for zircon d riven from Asia’s rapid and continuing urbanis a tion.

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The DFS has ide n tified significant saving s on previou s project stu d ies in the project devel o pment cos t s (capex), w hich are n ow estimat e d at $135. 7 m, includin g significant c ontingenci e s, and with a rapid capi t al payback p eriod post‐ pro d uction com m encement of 2.7 years (life of min e estimate o f 13.2 years) . This comp a res to the AUD$161m c a pex esti m ate provid e d in the 20 1 6 study by i n dependent engineerin g firm Sedg m an (refer ASX announcement 15 June 2016).

The post‐tax pro j ect NPV is e stimated at $113.3m using a 10% di s count rate a nd base pri c ing assum p tion of US$ 1 ,500 per t onne for pr e mium zircon product. Current base prices for zi r con are in t h e range of U S$1,580 (Il u ka referen c e pric e as at Octo b er 2018) to US$1,700 p e r tonne for current “sp o t” price pur c hases.

ENFI has used a c onservativ e evaluation method to e nsure the DFS study not only satisfi e s the needs of general inve s tors, but al s o the exacting criteria r e quired by C hinese fina n cial institutions (banks a nd instituti o nal lenders ) and Chinese state‐o w ned enterprise (SOE) c o mpanies wi t hin the sec t or for the p u rpose of immediate investment deci s ions.

Wel c oming the D FS findings, Diatreme’s Chairman, M r Gregory S tarr said: “ W e are delig h ted by thes e results, w h ich confirm that Cyclone’s econ o mics are sound and the project cap a ble of attra c ting the ne c essary inve s tment. In a mar k et where zi r con is ente r ing a period of constrai n ed supply, t he develop m ent opport u nity for Di a treme is immediately ap p arent.

“Dia t reme will n o w seek to u nlock the p r oject’s valu e for shareh o lders throu g h its further developm e nt.”

ENFI’s Lead Cycl o ne Project S tudy Mana g er, Mr Shu x un Wang said: "ENFI wa s pleased to undertake the Definitiv e Feasibility Study for the Cycl o ne Heavy M inerals Zirc o n Project, a study undertaken usin g strict and c o nservative stan d ards comp a tible with Chinese bankable feasibility require m ents.

“Ou r study findi n gs confirm t his is an ec o nomically r o bust project and well worth attenti o n for inves t ment purp o ses. It is f urther reco m mended t h at Diatrem e undertake t he project’ s development and cons t ruction as soon as poss i ble.”

Foll o wing are fu r ther summ a ry details r e garding Cyc l one and th e DFS, comp r ising:

Cyclone Zircon Project introduct i on
Executive summary – ENFI Cyclo n e DFS, incl u ding:
Base DF S assumptio n s
Financial results and data
Capital c ost estimat e
• Operati n g cost esti m ate

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Mineral Resource a n d Ore Reser v e
Process d esign
Mine pl a n
Final pr o duct prices
MSP fin a l products
IRR sensitivity analy s is
Permitti n g and appr o vals
Product offtake
Development timeli n es
• Finance S trategy
Key risk s
Summary
• Annexu r e 1: ENFI DFS report – d e tailed assu m ptions

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Cyclone Zircon Project Introduction

Disc o vered in 2 0 07, the Cycl o ne Zircon deposit is loc a ted along t h e Barton s h oreline wit h in the Wan n a Lak e s area of th e northern E u cla Basin, 25 kilometre s from West e rn Australi a ’s state bor d er with So u th Australia and 22 0 kilometre s north of th e transconti n ental railw a y.

In N o vember 20 1 4, Western Australia’s D epartment of Mines an d Petroleum granted a M ining Lease (M6 9 /141) for t h e project, w hich follow e d the signing of a Proje c t Agreement with the t r aditional o w ners, the S pinifex Peo p le. In January 2017, the project rec e ived final m inisterial co n sent allowi n g for the dev e lopment of a mineral sands mine a n d associate d infrastruct u re.

A D e finitive Fea s ibility Study has now be e n undertaken by China ENFI, part o f the leadin g China Min m etals grou p , reaf f irming Cycl o ne’s potential as the largest undev e loped zirco n project in the world‐cl a ss Eucla Basin (refer ma p ).

Figure 1: Cyclone Project Location

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Executive Summary ‐ Cyclone Project DFS Results

Diat r eme engag e d ENFI, thr o ugh Cooperation and C o nsulting Se r vices agree m ents, ( refer ASX announcement 11 January 2018 ) f o r the compl e tion of the Cyclone Zir c on Project D FS. Under t h e agreeme n ts ENFI will also use its net w ork within C hina’s state‐owned ent e rprise and b anking sectors to assist in sourcing p otential pr o ject invest o rs, offt a kers and pr o ject debt f u nders. ENFI ’ s engagem e nt was to review previo u s Cyclone s t udies, inclu d ing the 20 1 2 PFS a nd the 201 6 Enhancem e nt Study b y Sedgman, a nd then co m plete the DFS.

ENFI has adopte d a conserv a tive approa c h compare d to previou s ly reported study result s for Cyclon e . This has resulted in high e r than Aust r alian stand a rds of proje c ted workin g capital, su s taining capi t al, production ramp‐up , and ope r ating costs. This metho d is standard for a study t o achieve bankable fea s ibility statu s with Chine s e financial insti t utions and f acilitates i m mediate fu n ding options for potent i al Chinese i n vestors.

Cycl o ne’s DFS h a s demonstr a ted the pro j ect capable of generati n g significan t value for s h areholders, due to its proj e cted profit a bility, redu c ed capex compared to p revious estimates and clear pathwa y to development.

Base DFS Assumptions (Table 1)

USD:AUD Ex change Rate	0.73 5
CNY:USD Exc hange Rate	6.8
Financial Mo del Discoun t Rate	10%
HMC Produc t Price	85% of finalprod uct value
Studyaccura cy	15%
Contingency	10%
MiningRate	10m illion tonne sper annum (Mtpa)
HMC Annua l Production Rate	147, 700 tonnes (average)
Mine life	13.2 years
Construction period	2ye ars

The project eval u ation was c ompleted u s ing US doll a rs and the exchange rat e used in th e study for Australian co s t inputs to the study was AUD$1 = US$0.7 3 5. The US$ results of the DFS have b een conve rt ed to AUD u sing this exchange rate. A ll financial r e sults are p r esented as a fter‐tax val u es.

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Financial Results & Data (AUD$) (Table 2)

N et Present Value	$113.3m
I nternal Rate of Return	27.2%
P aybackperi od(product ionyears)	2.7years
C onstruction Capital(cap ex)	$135.7m
A verage Ann ual Revenue	$130.1m
A verage Ann ual operatin gexpenditu re(opex)	$75.5m
W orkingCap ital *	$11.7m inY ear 1
S ustainingCa pital *	$18.7m($1 0.2m in Yea r 1)
A verage Ann ual Compan yTax(30%)	$11.6m
A verage Ann ual After‐Ta x Profit	$26.6m
A verage Ann ual Deprecia tion	$9.9m
A verage Ann ual State Ro yalty	$6.5m

No_ _t e: Working c_ _a pital and sustaining capit_ _a l contingenci_ _e s at $11.7m and $10.2m_ _( $21.9m total_ _f or first year) respectively_ _f or first_ _y ear of opera_ _t ions are rela_ _t ively high by Australian st_ _a ndards but compliant wit_ _h Chinese ban_ _k able study s_ _t andards. Re_ _m oval or re_ _d uction of th_ _e se contingen_ _c ies could po_ _t entially enha_ _n ce project r_ _e turns and ec_ _o* nomics.

Cyclone – Operating Cash Flow Chart (Figure 2)

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Adding to the pr o ject’s solid fundament a ls, Diatrem e considers the evaluation method u s ed by ENFI t o be extre m ely con s ervative. The Company e xpects wor k ing capital t o be much lower than projected, w h ile sustaini n g capital is unli k ely to be re q uired at all in Year 1. T h e financial o utcome for the project i s therefore l ikely to be b etter than these results reported by ENFI.

Capital Cost Estimate (AUD$) (Table 3)

ITEM	COST ESTIMATE ($m)
Wet Concen trator Plant and Mining Units	38.11
Roads andT ransportatio n	27.88
Tailings Fac ilities	13.63
Bores andW ater Supply System	12.04
Accommoda tion Camp, Offices and Amenities	10.00
Power Distr ibution Syst em	4.00
Maintenanc e Workshop and Equipm ent	3.00
Telecommu nications an d Plant cont rol System	2.33
Engineering ,Procureme nt & Constr uction Mana gement	11.28
Contingency	13.40
TOTAL CAPI TAL COST	135.67

The c apital cost e stimate ha s been redu c ed to $135. 7 m during t h e ENFI stud y with the m ain areas of cost saving s comprising:

Processi n g equipme n t, plant fab r ication and constructio n
Haul road construction
Product transport c o ntainers.

ENFI reduced th e projected c ost of the W et Concent r ator Plant ( W CP), Mining Unit Plant , and associ a ted pumps a nd pipi n g using Chi n ese equipment and pro c urement w h ere appro p riate. The h a ul road cos t was reduc e d using a lo w er cost constructio n method, w hich was en a bled by th e selection o f a more ap p ropriate co m paction enhancing and dust‐suppressin g agent.

Flin d ers Ports provided a pri c e for container receival , handling, and ship loading at Port A delaide, including the u s e of port ‐ supplied containers. Th e cost that w as previously included f or purchasi n g product c o ntainers h a s therefore b een rem o ved from t h e capital pr o ject, resulting in a small increase in operating c o sts due to h igher port charges to c o ver the c ontainer o w nership costs.

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The DFS include s an analysis by ENFI of t h e options t o either pro d uce final products in A u stralia, or e x port heavy min e ral concent r ate (HMC) f rom Australia and prod u ce the final products in China.

The s tudy reco m mended th a t the miner a l separatio n plant (MSP) would hav e lower capi t al and oper a ting costs i n China and Cyclo n e should m a rket the H M C to a Chin e se custom e r with a suitably equipp e d MSP. Mo r e than one cust o mer is also a possibility , given ther e is currentl y excess MS P capacity in China and v e ry limited domestic HMC sup p liers.

Con s equently, t h e DFS finan c ial evaluati o n is based o n the sale of HMC on a C IF basis to C hina and the HMC pric e incl u des shippin g to Shangh a i.

The e stimated a v erage annual operating cost is $75. 5 m, which is slightly hig h er than esti m ated in th e 2016 stud y due to t h e more con s ervative ap p roach take n by ENFI. A summary of the operati n g cost esti m ate is pres e nted in the following table:

Average Annual Operating Cost Estimate (AUD$) (Table 4)

ITEM	COS ($m T )
Mini ng,Processin gand Reha bilitation(ex ‐labour)	29.0 1
Logis tics	21.0 7
Site Employee Re muneration	8.67
Fuel and Power	7.68
Corp orate Overh eads and Sit e Administra tion	5.00
Main tenance	4.07
TOTA L OPERATIN G COST	75.5 0

The improved market outlo o k for zircon and titaniu m products has increase d the project ’ s estimated average an n ual revenue to $130.1m. ENFI r e viewed the m ineral san d s market a n d is confide n t that curr e nt prices ar e likely to fo r m a soli d base for th e project an d can be confidently use d for its fina n cial evalua t ion.

Mineral Resource and Ore Reserve Estimate

The C yclone Mi n eral Resour c e estimate w as update d in January 2 017, comp r ising 203 M t at 2.3% H M (at 1.0% H M cut‐ o ff grade), c o ntaining 4. 7 0Mt of HM (refer ASX r e lease date d 27 April 20 1 7)

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CYCLONE MINERAL RESOURCE AND ORE RESERVE ESTIMATE

Cate gory	HM cu off % t‐	Materi al Mt					Hea d Grade	Hea d Grade					Z ircon
			HM %	H M M t	Slime %	OS %	Zirc % on	Rutil e %	Leuco %	HiT % i	Alt Ilm %	Si TiOx %	K t
CYCL ONE MINERA L RESOURCE ESTIMATE
MEA SURED	1.0	156	2.4	3. 81	4.2	5.0	0.6 9	0.07	0.16	0.5 8	0.30	0.53	1 ,079
INDIC ATED	1.0	48	1.9	0. 89	4.4	5.1	0.3 8	0.04	0.09	0.6 2	0.30	0.34	1 83
TOTA L	1.0	203	2.3	4. 70	4.2	5.0	0.6 2	0.06	0.14	0.5 9	0.30	0.49	1 ,262
Mine ral Assembla ge							27%	3%	6%	26%	13%	21%
CYCL ONE ORE RES ERVE ESTIMA TE
PROB ABLE		138	2.6	3. 52	4.6	5.3	0.7 2	0.07	0.17	0.5 9	0.32	0.57	9 90
TOTA L		138	2.6	3. 52	4.6	5.3	0.7 2	0.07	0.17	0.5 9	0.32	0.57	9 90
Min eral Assembla ge							28%	3%	7%	23%	13%	22%

Table 5 Notes

Roundin g may generat e differences in last decimal pl a ce
A consta n t SG of 1.7 ha s been used to d erive materia l tonnes
Slime ref e rs to material typically <53u m
OS refers to material ty p ically >2mm
Mineral A ssemblage de r ived from QE M SCAN® analys i s
Leucoxe n e (Leuc) – Ti‐o x ides containin g 85 – 95% TiO 2 , HiTi ‐ Ti‐oxid e s containing 7 0 ‐ 85% TiO2, A ltered Ilmenit e (Alt Ilm) ‐ Ti‐o x ides containi n g <70% TiO2, S i‐bearing Ti‐O x ide (Si TiOx) – T i‐oxides cont a ining >10% sili c a rich Ti mine r als.
� “Strand ” , “Beach” and “Nearshore” represent differi n g geological d o mains based u pon varying s e diment grain size and sorting (i.e. depositi o nal environme n t), mineralog y and HM grad e .

The HM mineral assemblage at Cyclone h as been de t ermined by QEMSCAN a nalysis of c o mposite sa m ples taken throughout the d eposit. QE M SCAN (Quantitative Ele c tron Micro s copy, Particle Mineralo g ical Analysi s ) was chos e n as the a nalytical te c hnique as i t was recognised early in the explora t ion process that whilst t he Cyclone HM contain e d high proportion s of zircon, it also displayed a broad r ange of variably weathered (i.e. coa t ed) and alt e red titaniu m min e rals that w o uld be diffi c ult to quantify using more conventi o nal techniq u es (eg mag n etic separa t ion and XR F anal y sis or grain ‐ counting).

Ho w ever, the d e velopment o f QEMSCA N mineral lis t s and partic l e classification rules ha s required o n going assessment to b e tter align t h e determin a tion of res o urce miner a l assemblag e with the p r oduction o f mineral con c entrates an d products generated fr o m benchto p metallurgi c al testwork.

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Samples were c o mposited from the HM ( sink) sache t s derived fr o m HM anal y sis, with gr o upings det e rmined by assessing the lo c al geological characteristics (i.e. geological inter p retation of drillhole log g ing) and vi s ual analysis of the s achets to r e strict the Q E MSCAN sa m ple to a dis t inct mineralised domai n .

Aro u nd one thir d of the HM at Cyclone i s zircon, ran k ing it as on e of the highest value mineral assemblages on a global scale. The remainder o f the HM c o mprises a broad range o f weathere d and altere d titanium m inerals ran g ing fro m rutile (95% TiO2) throu g h to altere d Ilmenite (~ 6 0% TiO2), w ith very low levels of tr a sh HM.

Process Design

A bulk sample f o r metallurgi c al testwork was collect e d from drillholes across the entire area of the o r e reserve. T he bulk sample was initially pre p ared for M i neral Technologies as t h ree separat e bulk samp l es representing the thr e e geol o gical zones of dune, be a ch and nearshore. The table belo w provides a s ummary of t hree samples, includin g sam p le mass, H M %, oversiz e %, average particle size for the san d portion less than 2 millimetres and slimes.

Ore Zone	Mas s (kg)	HM %	Oversize % (+2mm)	Part (mic icle size ron)	Slimes %
Dune	2,23 5	2.14	16.6	220	4.17
Beac h	3,79 2	3.50	3.3	220	1.61
Near shore	948	2.12	8.8	149	3.22
Tota l(average)	6,97 5	2.88	6.9	197	2.66

Tabl e 6: Bulk Sa m ple Details

All z o nes are lo w in slimes a n d the dune zone is signi f icantly higher in oversize due to th e presence o f weatherin g rela t ed indurati o n. HM% an d particle siz e are in the n ormal rang e expected for mineral s a nd processing.

Bef o re undergoi n g processi n g testwork, sub‐sample s were take n from the three bulk sa m ples and subjected to characterisation tests to un d erstand the potential for processing variability of the sampl e s and to identify any iss u es with the sample s that could a rise during processing t estwork.

The s amples we r e processe d on a shaking table to p r oduce HM c oncentrate, and the co n centrates were subject e d to magnetic fractionation and then separat e d in heavy l iquid with a density of 4 .05SG to ch e ck for pote n tial variability in the r ecovery of z ircon.

The results of th e bulk samp l e characterisation tests demonstrated that 17% of the HM i n the sampl e s reported t o the t able tailing s fraction. T h is is due to t he relativel y large com p onent of lig h t titanium m inerals (co a ted and alt e red tita n ium minera l s) in the sa m ples.

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Zirc o n recovere d very well t o concentrate and made up 94.3% o f the +4.05S G fraction. A l l magnetic f ractions an d SG frac t ions were i n spected un d er a micros c ope confir m ing the pre s ence of coated and stai n ed mineral s , and significant pro p ortions of a l tered ilmenite, and leucoxene grain s .

This zone chara c terisation information w as used for p lanning th e processing testwork. T h e results of the bulk sa m ple characterisation tests demo n strated tha t there would be some m etallurgical benefits in p rocessing t h e ore zone s sep a rately.

Ho w ever, the added comple x ity and ine f ficiency tha t would be encountered by site proc e ssing and m ining result e d in a de c ision to co m bine the three samples for the met a llurgical te s twork and p rocess desi g n. The obje c tives for th e met a llurgical study were to m aximise th e recovery o f zircon and to maximise the HM grade of the concentrate. The characterisation tests demo n strated the s e objective s could be a c hieved fro m the combi n ed bulk sa m ple.

Min e ral Technol o gies concluded that th e processing testwork d e monstrated that three m ineral products, zircon, HiTi 8 7 and HiTi6 7 could be produced from Cyclone H MC.

The W CP will be located on t he western side of the m ine, appro x imately one kilometre n o rth of the initial minin g area. This WCP l o cation will b e fixed for t he life of th e mine and h as been selected to en s ure the pu m ping distan c es for b oth feed an d tailings do not becom e excessive. T ailings stor a ge facilities will be loca t ed north and south of t h e WC P to ensure short tailings pumping di s tances duri n g the early years of the mine.

The W CP proces s flowsheet h as been de s igned by Mineral Tech n ologies bas e d on metall u rgical test w ork comple t ed on t h e bulk sam p le. The bul k sample wa s collected t o produce a representative sample s u itable for m ine life pro c ess desi g n. The bulk sample was screened a t 3mm prior t o commen c ing WCP spiral testwor k .

Ore in slurry for m will be received by th e WCP surge bin which w ill feed a standard HM w et concentration proce s s at a co n trolled rat e . The surge b in will moderate variations in feed r ate from t w o dozer tra p s to produc e an averag e feed rate to the s eparating e quipment o f 1210 tph.

The W CP proces s will be a t o tally wet sl u rry process a nd will incl u de screeni n g and sever a l stages of g ravity con c entration u s ing spirals, c lassifier, an d shaking ta b les to conc e ntrate the v aluable he a vy minerals.

The f irst stage o f gravity con c entration t e stwork use d MG6.3 spi r als as the r o ugher spira l s operating at 1.6tph and 2.0t p h. Release c urves were developed to provide a p redictive t o ol characte r ising the se p aration performance o f the pre p ared sampl e . The tests indicated th a t zircon in t h e sample r e adily respo n ded to gravity separati o n using spir a ls, and t itanium mi n erals were l ess efficien t ly separate d due to a hi g h proportion of lower SG Ti minerals. The middlings stre a m from the rougher spi r als was als o tested on M G6.3 spiral s .

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The c oncentrate from the rougher and m id scaveng e r spirals wa s screened a t 1mm to pr e vent coars e sand beco m ing a pr o blem with r ecirculating streams in the cleaner spirals and t h e +1mm ov e rsize was r e jected. The remaining ‐ 1 mm HM c oncentrate was proces s ed using H G 10i spirals at 1.5tph an d 1.8tph to g e nerate sep a ration data for the clea n er stag e .

The lower feed rate produced better performance. H G10i spirals were also u s ed for re‐cl e aner stage tests which indi c ated an ad d itional finis h ing stage w o uld be req u ired to upg r ade the con c entrate to a high HM g r ade with hi g h zirc o n recovery.

Finisher stage testwork involved HG10i and WW6 sp i rals, WHIM S and an up c urrent clas s ifier (UCC). T he UCC tes t s pro d uced superi o r performance with th e underflow c ontaining m ore than 8 0 % of the st a ge feed HM and a grade exceeding 97% H M. The UC C overflow was then pro c essed using HG10i spirals and shaki n g tables to p roduce a fi n al con c entrate fro m the fine sand fraction. The table c o ncentrate grade was in e xcess of 98 % HM with a stage reco v ery of 9 8 % zircon.

Perf o rmance si m ulation of t h e WCP was conducted u sing data g e nerated from the test w ork. Small v a riations we r e not e d for modelled interme d iate stream data.

The s imulation r e sults indicated a HMC c ontaining 9 7 .8% HM would be prod u ced at a ra t e of 25.9 tp h for a mini n g rate of 1300 tph . Total HM r e covery wo u ld be in the order of +6 5 % from the plant feed w hile VHM ( + 4.05SG) recovery of +90 % was achie v able.

The majority of s ilica minerals, trash minerals and lo w SG titaniu m minerals w ill be rejec t ed to tailings from the W CP. A hi g h grade mi n eral concentrate (+97% HM) will be produced c o ntaining th e zircon and valuable tit a nium mine r als.

Met a llurgical te s twork has demonstrate d good reco v ery of zirco n and valua b le titanium m inerals in c onventiona l spir a l separator s . The avera g e rate of H M concentra t e (HMC) pr o duction fro m the WCP i s estimated to be up to 2 3 tph a fter applyi n g the bulk s a mple results to the Ore Reserve H M grade.

Min e ral recoveries have been estimated from miner a l distributi o ns using:

QEMSC A N mineral c l assification and chemic a l analysis o f the bulk sa m ple
Analysis of concentr a te produce d from the W CP gravity c oncentrati o n process t e sts
• Analysis of final pro d ucts produ c ed from the MSP proce s s tests
Process s imulation and back‐cal c ulation of f e ed grades.

The e stimated m ineral reco v ery from th e WCP feed ( bulk sampl e ) to the WC P HM conce n trate is shown below.

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WCP Mine ral Recovery	WCP Mine ral Recovery
Zircon	95.3%
Rutile	75.3%
Leucoxene	36.4%
HiTi	29.8%
Altered Ilm enite	68.0%
SiTiOx	36.7%

Tabl e 7: WCP M i neral Recov e ry

The s e mineral distributions h ave been e s timated fro m simulated flows and Q emscan pa r ticle classifi c ations. Wh e n applied to the o r e reserve these recover i es result in a n hourly H M concentra t e producti o n rate of 19.2 tph.

CPG estimated a production rate of 21 t p h from the b ulk sample without simulating reco v ery from m iddlings str e ams. The e stimated HM concentr a te producti o n rate incr e ases to 25. 9 tph when t h e addition a l productio n from proc e ss sim u lation is included. The a v erage production rate o f 19.2 tph used in this r e port allows for the low e r grade of the ore r eserve com p ared to th e bulk sampl e and includ e s a portion of the simulated produ ct ion.

Mine Plan

The a rea planne d to be min e d is lightly vegetated wi t h spinifex, s hrubs, and s cattered ac a cia and eucalypt trees. T he larg e r vegetatio n will be cle a red using a b ulldozer to push wood y vegetation into heaps a nd where p r actical the hea p s will be pu s hed off the mining area. Heaps whi c h cannot b e practically p ushed off t h e mining a r ea will be rem o ved using an excavator and truck.

App r oximately 150ha will initially be cle a red of vege t ation for pr o ject constr u ction and a n average o f 50ha per y e ar will b e cleared f o r ongoing operations, i n cluding mining activitie s and suppo r t facilities.

Small vegetatio n that remai n s on the to p soil surface after the la r ger vegetation has bee n cleared will be remove d alon g with the t o psoil. Bulld o zers will push 0.1m de p th of topsoi l into stockpiles which will be transp o rted from the mining area to t h e rehabilitation area us i ng trucks lo a ded by an e xcavator.

For t he initial st a rt‐up pit w h en there will be no area available for rehabilitation, topsoil w ill be store d in stockpil e s outside the mining area. Th e average an n ual topsoil removal rat e is 50,000 c u bic metres per year.

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The o re to be mined is burie d beneath v a rying dept h s up to 20m of weakly m ineralised o verburden i n cluding a z o ne of induration rel a ting to a la t eritic weat h ering profil e . The overb u rden must b e removed to expose t h e high grad e ore zon e for mining.

During normal o p erations, t h e overburd e n will be re m oved usin g an excavat o r and will b e transport e d to the mi n ed out a reas in trucks where it w ill be dum p ed to backfill the pit. O v erburden w h ich is remo v ed for dev e lopment of the initi a l pit will be used to con s truct tailings storage fa c ility walls.

Sub s oil overbur d en will be s t ockpiled be s ide the mining area as r equired for t he rehabili t ation progr a m and will b e retu r ned as sub s oil to be placed on com p leted tailin g s before co v ering with topsoil.

A bulldozer and d ozer trap m ethod will b e used to mine the ore. There will b e two separ a te 650 ton n es per hour (tph) mining units at d ifferent sec t ions of the f ace to ensu r e blending o f higher an d lower grade ore to produce a controlled feed g rade to the WCP.

Bull d ozers will p u sh ore for a distance u p to 100m in t o the traps which will c o nvey the o r e at a consi s tent feed rate to a tr o mmel and s l urry bin. Th e trommel w ill screen o u t coarse pa r ticles larger than 3mm a s a coarse r e ject and w a ter will b e mixed wi t h the finer o re particles to form a sl u rry.

Slur r y pumps wi l l pump the o re from th e slurry bin t o a surge bi n at the WCP. Oversize m aterial reje c ted by the tro m mel will be s tockpiled on the pit flo o r and push e d away as necessary using a bulldo z er. The planned annual mining rate is 1 0 million ton n es per year.

Final product prices used in the DFS financial evaluation (Table 8)

Zirco n	US$1,50 0per tonne
HiTi8 7	US$800 per tonne
HiTi6 7	US$350 per tonne

The a verage annual production of HMC is projected a t 147,700 t o nnes, with t he HMC ha v ing a heavy mineral grade of 97.9%. Average H MC produ c tion for the first four ye a rs will be 1 6 7,469 tonn e s per year.

The s ale price for HMC deliv e red to Sha n ghai is esti m ated to be 8 5% of the v a lue of the f i nal products (zircon, Hi T i87 & Hi T i67) that w o uld be pro d uced from t he HMC. The average HMC sale price over the li f e of the pr o ject is proje c ted at a p proximatel y US$647 (A $ 880).

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Zircon Pricing Chart (Figure 3)

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

Zircon, premium grade, min 66.5% ZrO2, bulk, CIF China, $/tonne
18 0 0
16 0 0
14 0 0
12 0 0
10 0 0
8 0 0
L o w Price
6 0 0
4 0 0 High Price
2 0 0 DFS base
0 price
Low a nd high price a re actual mar k et prices, sup p lied by Industr i al Minerals Re s earch
Nov‐16 Dec‐16 Jan‐17 Feb‐17 Mar‐17 Apr‐17 May‐17 Jun‐17 Jul‐17 Aug‐17 Sep‐17 Oct‐17 Nov‐17 Dec‐17 Jan‐18 Feb‐18 Mar‐18 Apr‐18 May‐18 Jun‐18 Jul‐18 Aug‐18 Sep‐18 Oct‐18
----- End of picture text -----

The v alue of the final produ c ts will vary a nnually and is depende n t on the mineral assem b lage in the HMC and the MSP recovery of the minerals from HMC to final pro d ucts. The e s timated av e rage annua l production of MSP fina l pro d ucts from t h e HMC is presented in the Table 9 below:

MSP Final Products (Table 9)

MSP PRODUCT	AVERAGE A NNUAL PRO DUCTION
Zirco n	58,790 tonn es
HiTi8 7	9,179 tonne s
HiTi6 7	48,647 tonn es

Zirc o n contribut e s approxim a tely 80% o f the value o f the total fi n al products and is the c r itical mineral for obtaining a high price for th e HMC. The H MC is typically more than 50% zirc o n by weigh t .

MSP production of zircon wi l l average in excess of 7 0 ,000 tonne s per year fo r the first fo u r years of t h e operatio n . This is a conseq u ence of a mining sched u le designed to exploit t h e highest g r ade area of t he orebod y during the e arly years of operati o n.

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ENFI completed a sensitivity analysis to e valuate changes to inp u t variables relating to re v enue and costs and ho w these changes c o uld impact o n the project’s financial results. Th e analysis sh o wed that t h e project is more sensitive to v a riations in r e venue and less sensitiv e to variations in operat i ng costs an d capital cos t .

Vari a tions in the value of th e zircon component of t h e HMC will h ave the greatest influe n ce on reve n ue and its significance to t h e financial r esults is de m onstrated in the following charts (Figures 4‐6):

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IRR Sen s itivity (% after tax) (Figure 4 )
40
1850
35
Zircon
450
30
HiTi87
600 1000
25 Base C ase
HiTi67
250
20
Product Price (US $ )
15
1150
10
Pay b ack Sensitivity (ye a rs) (Figur e 5)
5
1150
4.5
Zircon
4
3.5
250
3 H iTi67 Base Case
HiTi 8 7 100 0
2.5 600
450
P roduct Pric e (US$)
2
1850
1.5
Net Present Value S e nsitivity (AUD$m) ( Figure 6)
250
185 0
200
Zircon
150
Base Case 4 5 0
1 000
600 H iTi87
100
250 H iTi67
P roduct Pric e (US$)
50
1150
0
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Permitting and Approvals

The C yclone pro j ect has bee n de‐risked f ollowing an extensive work and reg u latory prog r am, includi n g the iden t ification of a suitable water supply, Native Title and Mining Agreement, award of a M ining Leas e , extension of the p roject’s mi n e life with t h e acquisiti o n of Cyclon e Extended a nd environ m ental appr o vals:

( i) Nati v e Title and Mining Agreement

A N a tive Title and Mining Agreement be t ween Lost S ands and the Pila Nguru (Aboriginal Corporation) (RNTBC) repr e senting th e Spinifex Pe o ple was sig n ed at a cer e mony held at Tjuntjuntjarra, WA o n 15 Novem b er 2014 ( refer ASX announcement 17 November 2014 ) . The Spinif e x People ar e the traditi o nal owners of the Cyclone Project area.

The a greement p rovides en o rmous opp o rtunities fo r the Spinife x People. Di a treme expe c ts the min e will create aro u nd 100 jobs in both the c onstructio n and operational stages and the Co m pany has c o mmitted to a medium‐ ter m target of r e cruiting 20 % of the ope r ational wor k force from the local Indigenous co m munity.

The a greement a lso provide s for direct c a sh compen s ation payments, contracting oppor t unities to t e nder on various min e contracts a nd vocational benefits t h rough dire c t employm e nt on the p r oject and tr a ineeships. In addition, a n edu c ational trus t fund will s u pport the S p inifex Peo p le’s educati o n and training activities and a num b er of cultur a l initi a tives are al s o planned. P ayments associated with the agree m ent have been include d in the Cycl o ne DFS pro j ect fina n cial model.

(ii) Mining Lease

On 2 4 Novembe r 2014 DRX a nnounced that the WA Department of Mines a n d Petroleu m had granted a Mining Lease (ML69/14 1 ) for the Cyclone Zircon Project on 1 8 Novemb e r 2014. The mining leas e covers the original Cyclone resource area in c luding suffi c ient additi o nal area ar o und the res o urce for op e rational ac t ivities inclu d ing tailings, infr a structure a n d services. T he Cyclone Extended resource is cu r rently held under a Ret e ntion Licen c e (R69/1).

(iii) Environmental and Miscellaneous Approvals

Foll o wing an ext e nsive PER p rocess, fina l ministerial consent wa s received o n 9 January 2 017 (Minist e rial statem e nt No 1 052), allowing the Cyclone project t o “Develop a nd operate the Cyclone Mineral Sa n ds Mine, in c luding open cut pits, mining and processing infrastructur e , airstrip, a c commodation camp, b o re fields an d haul road c onstruction fro m the mine site to the Fo r rest rail siding.”

Furt h er details are available in the Company’s ASX announcement dated 10 January 2017 .

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Product Offtake

Diat r eme has been in discus s ions with a number of p otential H M C processin g companies in China ( refer ASX announcement 27 June 2017 ) who have current cap a city to refi n e the HMC p roduct. Th e se discussions have bee n centred principally around t h e provision of “pure” p r oduct tollin g arrangements.

The z ircon pre‐d o mination w ithin Cyclone’s HMC is e xtremely at t ractive to p r ocessors a n d end users , particularl y give n its low radioactivity in a market w h ere supply i s becoming i ncreasingly constrained .

As a developme n t strategy t h e Compan y has deliber a tely not so u ght to “loc k ‐away” offt a ke too earl y in the dev e lopment pr o cess. This i s to allow co m pletion of t he DFS stu d y and provi d e the maxi m um suite o f developm e nt opti o ns for inco m ing parties , who may l o ok to acqui r e all or sign i ficant porti o ns of the H M C offtake w ithin their o wn dev e lopment sc e narios.

This strategy als o acknowledges that giv e n Diatreme ’ s relative b a lance sheet to the anticipated proj e ct develop m ent cost , the Compa n y will need developme n t partners to assist in p r oviding the necessary p r oject finan c ing for min e dev e lopment.

Furt h er to this, the Compan y has recently entered in t o discussio n s with a major China‐b a sed party, an existing processor and r e finer of hea v y mineral products, to e xplore the p otential for establishin g a joint ven t ure process i ng plan t in China s p ecifically to refine Cyclo n e’s HMC p r oduct. This a rrangemen t may also i n clude direct investment by this p arty into C y clone through a form o f cross‐own e rship.

Wit h the releas e of the DFS s tudy, Diatr e me will no w seek to for m alise those discussions through a M emorandu m of Und e rstanding, w hich may l e ad to more binding agr e ements. Th e Company w ill keep th e market inf o rmed as th e se disc u ssions progress.

Finance Strategy

The C ompany, b a sed on the DFS reports outcomes, t he reports’ c ompliance w ith Chines e banking and investment req u irements (S O E’s and pri v ate investo r s) and give n market bu o yancy gene r ally within t he heavy m i nerals commodity sect o r, can mov e forward wi t h a high le v el of confid e nce that cr e dible proje c t financing a nd investm e nt part i es can be a s sembled wi t h terms acceptable to t h e company that can lead to the Cyclone Project being developed in the short ter m .

ENFI are also dir e ctly assisti n g the Comp a ny in this r e gard as par t of the commercial und e rstanding b etween the part i es.

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Key Risks

Key r isks have b e en identified and plans to mitigate t hese will be part of nex t stage impl e mentation. These risks incl u de:

Securin g project capital funding o r identifyin g suitable d e velopment partners th a t may assu m e that risk
• Negativ e movements in commo d ity prices o r foreign exchange • Inability to secure o f ftake arran g ements • Implem e ntation del a ys to proje c t commenc e ment.

Development Timelines/ Go‐Forward Plans

The C ompany h a s set a targ e t following c ompletion o f the DFS t o formalise entry of its p o tential maj o r development part n er(s) by mi d ‐first quart e r 2019.

The C yclone pro j ect has some natural commercial a n d market a d vantages that will assist greatly in t h is process:

DFS no w complete by China ENFI Engineerin g – showing robust economics
• DFS co m pliant with C hinese SOE and lender r equiremen t s
ENFI’s si g nificant Ch i nese SOE c o ntact base to assist in s o urcing development pa r tners
• Cyclone project has a ll primary p roject appr o vals in plac e – it is “sho v el” ready • Heavy m inerals sect o r buoyant a nd potentia l zircon sup p ly side shor t age identifi e d and ackn o wledged b y market
Cyclone product mix heavily zirc o n dominat e d – highest v alue heavy mineral pro d uct
• Project s tructure an d ownership allows all d e velopment options to be explored, i ncluding de v elopment b y Diatrem e , joint vent u re, earn‐in or project s a le.

Summary

The ENFI DFS st u dy confirms the Cyclon e project’s e c onomic fun d amentals are sound an d worthy of a dvancing t o immediate deve l opment. Su b ject to Boa r d approval, it is anticip a ted that Diatreme will now advance its discussi o ns with potential d e velopment partners to f acilitate pr o ject develo p ment as a m atter of pri o rity.

In al l these deali n gs, whether through major party e n try, joint v e nture, earn‐in or sale th e Company w ill, at all ti m es pursue options that provide maximum b e nefit to Diatreme shar e holders.

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Diat r eme’s CEO, Neil McIntyre said: “Dia t reme has p r ogressively de‐risked C y clone with t he award o f a Mining L e ase, iden t ification of suitable wa t er supplies, environme n tal approvals, acquisitio n of Cyclon e Extended a n d various independent studies, makin g the project ‘shovel‐rea d y’ for adva n cement. The completio n of the DFS by ENFI ma r ks a new milestone i n the projec t ’s develop m ent and we are now focused on delivering maxi m um value from this imp o rtant new p roject for W estern Aust r alia.

“Els e where, we c ontinue to a dvance our Cape Bedford Silica/He a vy Minerals Project in N orth Queen s land, as pa r t of our v aluable pro j ect portfoli o of mineral sands and s i lica project s . These are e xciting tim e s for Diatre m e shareholders and w e look for w ard to furt h er gains ah e ad, for the b enefit of all.”

Neil McIntyre	Greg Starr
Chie f ExecutiveO fficer	Chai rman

Cont a ct – Mr Neil McIntyre ‐ Ph – 0 7 33972222 Web s ite ‐ diatreme. c om.au E‐ma i l ‐ manager@ d iatreme.com. a u

Forward looking statements: T his document may contai n forward loo k ing stateme n ts. Forward l ooking state m ents are oft e n, but n ot always, id e ntified by th e use of words such as “se e k”, “indicate ” , “target”, “ a nticipate”, “ fo recast”, “believe”, “plan” , “esti m ate”, “expe c t” and “inte n d” and state m ents that a n event or res u lt “may”, “will”, “should”, “could” or “ m ight” occur o r be achi e ved and oth e r similar exp r essions. Indi c ations of, and interpretations on, futur e expected e x ploration results or techni c al outc o mes, produ c tion, earning s , financial position and pe r formance ar e also forwar d ‐looking stat e ments. The forward‐looking stat e ments in this presentation are based o n current inte r pretations, e x pectations, e stimates, as s umptions, fo r ecasts and proj e ctions about Diatreme, Di a treme’s proj e cts and asse t s and the in d ustry in whic h it operates a s well as other factors that man a gement beli e ves to be rel e vant and reasonable in th e circumstan c es at the dat e that such st a tements are made. The forw a rd‐looking s t atements ar e subject to t e chnical, busi n ess, econom i c, competitive, political a n d social uncertainties and cont i ngencies and may involve known and u n known risks and uncertai n ties. The forward‐looking statements m ay prove to b e inco r rect. Many known and unknown factors could cause actual event s or results to differ materi a lly from the estimated or anticipated event s or results expressed or i m plied by any f orward‐looking statemen t s. All forwar d ‐looking statements mad e in this p resentation a re qualified b y the foregoing cautionar y statements.

Disclaimer: Diatr e me and its r e lated bodies corporate, a n y of their dir e ctors, officers, employees , agents or contractors do n ot mak e any represe n tation or warranty (eithe r express or i m plied) as to t he accuracy, correctness, c ompleteness, adequacy, relia b ility or likeli h ood of fulfil m ent of any forward‐lookin g statement, o r any events or results ex p ressed or implied in any forw a rd looking s t atement, except to the ex t ent required by law. Diat r eme and its r e lated bodie s corporate a n d each of th e ir resp e ctive directors, officers, e m ployees, ag e nts and contractors disclaims, to the m a ximum exte n t permitted b y law, all lia b ility and r esponsibility for any direc t or indirect l o ss or damag e which may b e suffered b y any person (including because of fault o r negligence or oth e rwise) throu g h use or reli a nce on anyt h ing containe d in or omitte d from this p r esentation. O ther than as requ i red by law a n d the ASX Listing Rules, Di a treme disclaims any duty to update forward looking statements to reflect new developments.

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Competent Person Statement

The information i n this report, insofar as it r e lates to Min e ral Resource s is based on information c o mpiled by M r Ian Reudav e y, who was a full ti m e employee of Diatreme Resources Li m ited and a M ember of the Australian I nstitute of Geoscientists. Mr Reu d avey has suf f icient experi e nce which i s relevant to t he style of m ineralisatio n and type of deposit und e r considerat i on and to the activi t y which he has underta k en to qualif y as a Com p etent Perso n as defined in the 2012 Edition of ‘ T he Aust r alasian Cod e for Reporting of Exploration Results, M ineral Reso u rces and Or e Reserves’. M r Reudavey consents to t he inclusion in the re p ort of the m a tters based o n the information in the f o rm and cont e xt in which i t appears.

The information i n this report, insofar as it relates to Or e Reserves is based on inf o rmation co m piled by Mr Phil McMurt r ie, who is a director o f Tisana Pty L td (a consult a nt to Diatre m e Resources Limited), an d a Member o f the Austral a sian Institut e of Mini n g and Metallurgy. Mr M c Murtrie has s ufficient ex p erience which is relevant to the style o f mineralisa t ion and type of dep o sit under co n sideration a n d to the acti v ity which he has underta k en to qualif y as a Compe t ent Person as defined in t he 2012 Edition of ‘The Australasian Code f o r Reporting o f Exploration Results, Mineral Resources and Or e Reserves’. Mr Mc M urtrie conse n ts to the inclusion in the r e port of the m atters base d on the information in th e form and co n text in whic h it app e ars.

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Annexure 1: Cyclone Zircon Project – ENFI Engineering Study DFS Report Extracts ‐ Detailed Assumptions

Con t ents

1 ) Total ini t ial capex estimate
2 ) Mining costs WCP – A ustralia
3 ) OPEX
4 ) Economic evaluation and key ass u mptions

1 ) TOTAL I N ITIAL CAPE X ESTIMATE The t otal initial capex estima t e of this pr o ject is shown in Table 1 4 ‐3. Table 14‐3 Total i n itial capex estimate Un i t:KUS$

No.	De scription	Value (1000USD)	Value (1000USD)	Value (1000USD)	Value (1000USD)	Value (1000USD)	% of capita l cost
		Cons truction work	E pro quipment curement	Installation work	Other costs	Total value
	Part I: Engin eering cost
1	Slurry makin g in stope		4,472	1,351		5,824	5.84
2	Roughing pla nt	10,109	5,963	2,227		18,299	18.34
3	Laboratory	1,452	592	89		2,133	2.14
4	Pipe network process for beneficia tion			1,765		1,765	1.77
5	Tailings dam	2,768				2,768	2.77
6	Tailings deliv ery system	1,443	1,585	898		3,926	3.94
7	Tailings deliv ery pipeline			2,194		2,194	2.20
8	Return water system for ta ilings		647	303		950	0.95
9	Return water pipeline for t ailings			185		185	0.19
10	Comprehens shop【】 1 ive maintenan ce	662	463	199		1,324	1.33
11	General ware house【】 1	441	309	132		882	0.88
12	Water intake pump station	299	2,692	1,117		4,109	4.12
13	Water purific ation station	445	485	311		1,241	1.24
14	Domestic wa ter pump stat ion	118	114	71		303	0.30
15	Return water station booster pum p	445	635	341		1,421	1.42
16	Domestic sew station age treatme nt	118	94	25		237	0.24

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No.	De scription	Value (1000USD)	Value (1000USD)	Value (1000USD)	Value (1000USD)	Value (1000USD)	% of capita l cost
		Cons truction work	E pro quipment curement	Installation work	Other costs	Total value
17	Water supply network and drainage	1,544				1,544	1.55
18	Onsite powe r supply syste m【】 1	2,941				2,941	2.95
19	Onsite teleco system mmunication	44	1,305	365		1,715	1.72
20	Camp【】 1	4,412	2,206	735		7,353	7.37
21	General layo transportatio ut and n	860	1,299	7		2,166	2.17
22	Road【】 1	15,335				15,335	15.37
23	Airport【】 1	1,532				1,532	1.54
24	Railway tran system【】 1 sportation	1,471				1,471	1.47
	Total of Part I	46,438	22,862	12,315		81,614	81.81

No.		Va lue (1000US D)	Va lue (1000US D)	Va lue (1000US D)	Va lue (1000US D)	Va lue (1000US D)	% of c apital cost
	De scription	C onstruction work	Equ procu ipment rement	In stallation work	Other costs	Total value
	P c art II: Othere onstruction xpenses forp roject
1	L and royalty
2	M c anagemente onstruction u xpense of nit				1,722	1,722	1.73
3	C onstructions upervision fee				1,102	1,102	1.11
4	R esearch tests fee				588	588	0.59
5	E ngineering su rvey fee【】 1				200	200	0.20
6	E ngineering d esign fee				2,212	2,212	2.22
7	S ite preparatio n costs【】 1				500	500	0.50
8	A e dditional con xpenses【】 1 struction				750	750	0.75
9	E ngineering in surance prem ium				204	204	0.20
10	C old commiss ioning fee				371	371	0.37
11	H ot commissio ning fee				223	223	0.22
12	P roduction sta ff training fee				306	306	0.31
13	T p ools and prod urchase fee uction furnitu re				114	114	0.11

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	Va lue (1000US D)	Va lue (1000US D)	Va lue (1000US D)	Va lue (1000US D)	Va lue (1000US D)	% of c apital cost
De scription	C onstruction work	Equ procu ipment rement	In stallation work	Other costs	Total value
T otal of Part II				8,293	8,293	8.31

T otal of Part I and Part II	46,438	22,862	12,315	8,293	8 9,908	90.12

C ontingency				9,853	9,853	9.88

C apital cost	46,438	22,862	12,315	18,147	9 9,761	1 00.00

% of capital co st	46.55%	22.92%	12.34%	18.19%	100%

Not e : The invest m ent values marked[【][1][】] in Table 14‐ 3 are provid e d by Diatre m e Resourc e s Limited a n d confirme d by ENFI.

2) Mining Costs W CP in Austr a lia (i) R a nge of cost s of mining a n d WCP in A u stralia

Ope n ‐pit mining of this project includes four product i on links, i.e. , surface cle a ning, overb u rden remo v al, mining & stripping and re h abilitation. A fter being scrubbed in m obile scrubbing equipment, ores wi l l be screen e d, with oversize ＞3 m m) deliver e d to the mi n ed‐out area, undersize (＜3mm) pu m ped to rou g hing syste m WCP after s lurry makin g . The roughing sy s tem adopts spiral, UCC a nd concent r ating table to produce HMC. The e stimated F a ctory Cost o f mining an d WCP inclu d es outsourcing costs for mining and labour costs, materials & power costs in W CP, as well a s labour co s ts, repair c o sts and oth e r costs in fa c tory manag e ment. As r e quired by Diatreme, mi n ing outsour c ing cost sh a ll follow the following p r ice determi n ed in PFS o f the project :

Vegetati o n removal & Return: 2 0 00A$/t(147 0 .59US$/t)
Topsoil R emoval & R e turn: 2.5A$/bcm (1.84 U S$/m[3] )
• Overbur d en & Wast e Removal & Return: 2.5 A $/bcm (1.8 4 US$/m[3] ) • Ore Min i ng: 0.4A$/t (0.29US$/t) • Rehabili t ation: 3000 A $/t (2205.88US$/t)
Oversize Removal: 0.5A$/t (0.37 U S$/t)
• Tails Ma n agement: 5 000A$/t (3676.47US$/t)

(ii) E s timated results of minin g and WCP i n Australia

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The e stimated C a sh Cost of m ining and r o ughing WC P in full‐capacity years is 36,339KUS$ / a, converted to unit cost of 3.63 US$/t ores; the estimat e d Factory C o st includin g depreciation cost is 43, 6 33KUS$/a, c onverted t o unit cost of 4.36 US$ / t ores.

As t o the averag e mining an d WCP cost i n full‐capacity years, see Table 15.2‐ 2 for details.

Table 15.2‐2 Estimated average Fac t ory Cost of m ining and W CP in full‐c a pacity years

No.	Items	Unit	co Unit nsumption	co Total nsumption	U nit price	Unit cost	Total cost
					US$	US$/t ores	kUS$
1	Raw materia ls	US$
2	Auxiliary ma Cost terials & Mini ng outsourcin g	US$				1.9693633	19,694
	Vegetationr emoval & Ret urn	ha	0 .0000057	57	1470.59	0.0084129	84
	Topsoil Rem oval & Retur n	bcm	0 .0054347	54,347	1.84	0.0099903	100
	Overburden & Waste Rem oval & Retur n	bcm	0 .7570950	7,570,950	1.84	1.3917188	13,917
	Ore mining	t	1 .0000000	10,000,000	0.29	0.2941176	2,941
	Oversize Re moval	t	0 .0517692	517,692	0.37	0.0190328	190
	Flocculant	kg	0 .0149040	149,040	2.90	0.0432216	432
	Tails Manag ement	ha	0 .0000054	54	3676.47	0.0200071	200
	Rehabilitatio n	ha	0 .0000054	54	2205.88	0.0120042	120
	Others					0.1708580	1,709
3	Fuel	US$
	Diesel	kg
	Natural gas	GJ
4	Power					0.56	5,644
	Electric pow er	kWh	3.49	34,889,768	0.162	0.56	5,644
	Water	t

5	Productions taff remunera tion			43		0.38	3,794
6	Factory exp ense	US$				1.45	14,502
	In which: de preciation cos t	US$				0.73	7,294
	Re pair expense	US$				0.30	2,993
	Ma nage staff rem uneration	US$		18		0.26	2,581
	Othe r relevant cos t	US$				0.16	1,634
7	Subtotal Fac tory Cost for mining & WC P	US$				4.36	43,633

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No.	Items	Unit	co Total nsumption	U nit price	Unit cost	Total cost
				US$	US$/t ores	kUS$
	In which: op ex for mining and roughing	US$			3.63	36,339
8	Output (ore)	t	10,000,000
9	Output (ore& rock)	t	12,870,615

3 ) Total OPEX (i.e. total cash cost; a c id washing a nd MSP in C h ina not incl u ded) Apa r t from the above cash c o st for mining and WCP i n Australia, t he operatin g cost also i n cludes Mar k eting Overhead Cost (i.e. Selling C ost) and A d ministrative Overhead Cost. By c a lculation, t h e average operating cost in full capacity years is 55,509 KUS $ /a, an equivalent of 5.5 5 US$/t for p e r ton o f ore, and an equivalen t of 375.82 U S$/t for per ton of HMC . Tabl e 15.2‐3 list s seven elements of the o perating co s t in this pro j ect. For d etails of av e rage operating cost (cash cost) in full capacity y e ars, please refer to Tabl e 15.2‐3.

Table 15.2 ‐ 3 Average OPEX in full c a pacity years (HAL and M S P in China not included)

S /N	Cost elem ent	Total cos t	Percent the Tota age of l Cost	Unit cost	Unit cost
		KUS$/a	%	$/t Ore	$/t HMC
1	Rawm aterials
2	Auxilia ry materials	19,694	31.4 %	1.97	133.34
3	Fuels
4	Power	5,644	9.0 %	0.56	38.21
5	Emplo yee remunera tion	7,774	12.4 %	0.78	52.63
6	Repair cost	2,993	4.8 %	0.30	20.26
7	Other cost	19,405	30.9 %	1.94	131.38
8	Totalo pex (cash co st)	55,509	88.4 %	5.55	375.82
	Ore pr ocessing cap acity (t)			10,000,000
	Averag e HMC outpu t (t)				147,506

For t he estimate d year‐by‐y e ar operatin g cost (cash c ost), please refer to Table 15.2‐4:

Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$	Tab le 15.2‐4O perating co st (cash cos t) year by y ear Unit: KU S$
S/N	Item	T otal	1	2	3	4	5	6	7	8	9	1 0	11	12	13	14	15	16

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	Production load(%)		100	100	100	100	100	100	100	10 0	100	100	100	100	100	19
	ROM ore processing (kt)	13 1,900	10,000	10,000	10,000	10,000	10,000	10,00 0	10,000	10, 000	10,000	10 0,000	10,000	10,000	10,000	1,900
1	Raw materials
2	Auxiliary materials	25 7,005	12,604	13,193	14,195	17,918	18,342	21,74 2	22,678	25, 744	22,324	17 7,247	17,373	22,145	30,511	988
3	Fuels
4	Power	7 4,395	5,644	5,644	5,644	5,644	5,644	5,64 4	5,644	5,6 44	5,644	5 5,644	5,644	5,644	5,644	1,024
5	Employee remuneration	10 3,666	7,774	7,774	7,774	7,774	7,774	7,77 4	7,774	7,7 74	7,774	7 7,774	7,774	7,774	7,774	2,610
6	Repair cost	3 9,450	2,993	2,993	2,993	2,993	2,993	2,99 3	2,993	2,9 93	2,993	2 2,993	2,993	2,993	2,993	543
7	Other cost	25 7,101	21,087	22,283	21,262	21,282	17,393	18,47 1	19,853	19, 559	17,705	19 9,566	20,166	17,265	16,371	4,838
8	Total opex (cash cost)	73 1,616	50,101	51,886	51,867	55,610	52,145	56,62 3	58,941	61, 714	56,439	53 53,224	53,950	55,821	63,292	10,002

4) Economic evaluation and key assumptions

Comprehensive Economic Evaluation

The C yclone pro j ect in Austr a lia is owne d by Diatre m e Resource s Co., Ltd. The total reso u rce is 203Mt, the grade of hea v y mineral is 2.3%, and t h e amount o f heavy min e rals is 4.7 M t. Accordin g to JORC 20 1 2, about 7 5 % of ore ton n ages and a b out 80% of h eavy miner a l tonnages a re defined as measure d resources a nd the rem a ining part as indi c ated resour c es.

The d eposit, an a ncient coas t al placer, is a surface d e posit with l o w‐grade overburden o f about 9m t o 18m, under whi c h is a miner a lised layer w ith an average thickne s s of about 1 3.5m, suita b le for minin g through a n open‐pit bull d ozer minin g method an d conveyed b y slurry pu m p. For b eneficiatio n , a combined process c o mprising gr a vity roughi n g (WCP)‐acid leaching‐ e lectric separation, mag n etic sep a ration and g ravity separation will b e employed. T hrough ro u ghing, HMC is produced while the t a ilings are bac k filled to the goaf area.

The heavy mine r als will then undergo th e MSP proc e ss after aci d leaching, p r oducing th e following t h ree types o f final concentrat e products: z irconite, Hi T i67 non‐ma g netic conc e ntrate and H iTi87 magn e tic concentrate.

Thr o ugh options compariso n and selecti o n in the de s ign, it is su g gested that the HAL & M SP be built in China, th a t is, the H MC produced is transp o rted by tru c k to Forest R ailway Station located 2 40km awa y , followed by 1300km rail w ay transpor t to Adelaid e Port for sh i pment and s ale to HAL a nd MSP fac i lities in Sha n ghai, China.

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Total project ca p ex (excludi n g HAL & MSP in China), i ncluding to t al working c apital, is es t imated at U S $108,375, 0 00, incl u ding initial c apex of US $ 99,761,000 and workin g capital of US$8,614,00 0 .

Fina n cial evalua t ion shows t h e project is able to deli v er high pro f itability ind e xes under t h e base cas e (CIF price o f the pro d ucts at a port in China: Z ircon at US $ 1,500/t, Hi T i87 at US$8 0 0/t, HiTi67 at US$350/ t ; CIF price o f HMC is calc u lated at 85 % of income from MSP products): Fi n ancial inter n al return rate IRR of in v estment is 2 7.18%; fina n cial net p resent valu e NPV is cal c ulated to b e US$83,302 , 000 at a dis c ount rate of 10%; and p ayback peri o d is 4.7 years (incl u ding the 2 y ear construction period).

It is s uggested t h at Diatrem e Resources s hould impl e ment devel o pment and constructio n as soon as possible. (ENFI Extract – End).

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AI assistant

DIATREME RESOURCES LIMITED Capital/Financing Update 2018

64787_rns_2018-11-14_9af2d807-7da4-4e7c-90d1-4f7ea809fee4.pdf

ASX ANNOUNCEMENT

Base DFS Assumptions (Table 1)

Capital Cost Estimate (AUD$) (Table 3)

Average Annual Operating Cost Estimate (AUD$) (Table 4)

Mineral Resource and Ore Reserve Estimate

CYCLONE MINERAL RESOURCE AND ORE RESERVE ESTIMATE

Table 5 Notes

Process Design

Mine Plan

Permitting and Approvals

(ii) Mining Lease

(iii) Environmental and Miscellaneous Approvals

Product Offtake

Finance Strategy

Key Risks

Development Timelines/ Go‐Forward Plans

Summary

Competent Person Statement

Annexure 1: Cyclone Zircon Project – ENFI Engineering Study DFS Report Extracts ‐ Detailed Assumptions

Con t ents

2) Mining Costs W CP in Austr a lia (i) R a nge of cost s of mining a n d WCP in A u stralia

4) Economic evaluation and key assumptions

Comprehensive Economic Evaluation

AI assistant

DIATREME RESOURCES LIMITED — Capital/Financing Update 2018

64787_rns_2018-11-14_9af2d807-7da4-4e7c-90d1-4f7ea809fee4.pdf

ASX ANNOUNCEMENT

Base DFS Assumptions (Table 1)

Capital Cost Estimate (AUD$) (Table 3)

Average Annual Operating Cost Estimate (AUD$) (Table 4)

Mineral Resource and Ore Reserve Estimate

CYCLONE MINERAL RESOURCE AND ORE RESERVE ESTIMATE

Table 5 Notes

Process Design

Mine Plan

Permitting and Approvals

(ii) Mining Lease

(iii) Environmental and Miscellaneous Approvals

Product Offtake

Finance Strategy

Key Risks

Development Timelines/ Go‐Forward Plans

Summary

Competent Person Statement

Annexure 1: Cyclone Zircon Project – ENFI Engineering Study DFS Report Extracts ‐ Detailed Assumptions

Con t ents

2) Mining Costs W CP in Austr a lia (i) R a nge of cost s of mining a n d WCP in A u stralia

4) Economic evaluation and key assumptions

Comprehensive Economic Evaluation

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DIATREME RESOURCES LIMITED Capital/Financing Update 2018