DIATREME RESOURCES LIMITED - Capital/Financing Update 2019

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ASX ANNOUNCEMENT

9 Se p tember 20 1 9

Galalar scoping study emphasises high return potential

Scoping study for Diatreme’s Galalar Silica Project, Far North Queensland, confirms project capable of becoming a significant near‐term, low‐cost and premium quality silica producer
Mining Lease in a pre‐lodgement process with Queensland regulatory agencies and preparation of external independent environmental surveys is currently underway
Targeting production of high purity silica sand (with low iron) required for production of solar panels and ultra –clear glass products
Further improvements likely for study to enhance economic returns, concerning export logistics , potential for a further “ultra‐low iron” silica export product and exploration areas identified to potentially add to existing resource base
Offtake discussions continuing
Scoping Study and its financial results attached to ASX announcement

Emerging silica sands explor e r and devel o per, Diatre m e Resourc e s Limited ( A SX:DRX), announced to d ay a scopin g study for its Gal a lar Silica Pr o ject in Far N orth Queensland, highlighting the project’s pot e ntial to bec o me a signif i cant nea r ‐term, low‐ c ost and pre m ium‐qualit y silica prod u cer for fast growing Asian markets.

To be develope d in partners h ip with the traditional o wners, Hopevale Congr e ss (12.5% Project inter e st), the ne w min e located 20 0 km north o f Cairns has t he potenti a l to generat e high‐value jobs for the local community, with a focus on maximi s ing local e m ployment and supplier o pportuniti e s. Estimate d employme n t is around 30 to 40 jo b s in the c onstruction phase and a round 60 (employees a n d contract o rs) in produ c tion, for an operation w ith a projec t ed min e life of 15 y e ars.

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Cautionary Statement

The S coping Stu d y referred to in this announcement has been u n dertaken as part of staged, next ste p process to det e rmine final p athways to a feasibility study base d on an incre a sed unders t anding of project requi r ements. It i s a preliminary technical and ec o nomic study of the pot e ntial viabili t y of the Galalar Silica Pr o ject.

Furt h er exploration and evaluation work and appropriate studie s are still required befor e the Company will be in a posi t ion to com p lete a feasi b ility study, t o estimate a ny Ore Res e rve or to pr o vide any a s surance of a final economic dev e lopment ca s e.

Of t h e Mineral Resource on w hich the P r oduction Target is base d , 71% is in the Indicate d Mineral Re s ource cate g ory (Table 1). The C o mpany has c oncluded g i ven the lev e l of Indicat e d Resource t hat it has r e asonable g r ounds for disclosing a Pro d uction Targ e t.

The r e is a low le v el of geolo g ical confide n ce associat e d with Inferred Mineral Resources ( 29% of Tot a l Mineral Res o urce Estimate) and there is no certainty that fur t her exploration work will result in t h e determination of addi t ional Indicated Mineral Resources o r that the P r oduction T a rget itself will be realise d . The level of accuracy within this proje c t scoping s t udy include s the uncert a inty associ a ted with incorporating I n ferred Res o urces. The stat e d Producti o n Target is b ased on the Company’s current exp e ctations of future resul t s or events and should n ot be r e lied upon b y investors w hen makin g investmen t decisions. F urther eval u ation work and approp r iate studies are req u ired to esta b lish sufficient confiden c e that this t a rget will b e met.

The S coping Stu d y is based o n material assumptions outlined els e where in t h is announc e ment. Thes e include assumptions ab o ut the avail a bility of funding. While the Compa n y considers all the mate r ial assump t ions to be b a sed on r e asonable g r ounds, ther e is no certainty that th e y will prove to be corre c t or that th e range of o u tcomes indi c ated by the Scoping Stu d y will be achieved.

To a c hieve the possible min e developm e nt indicated in the Scop i ng Study, a d ditional funding (to tha t required t o esta b lish the pr o ject) of at l e ast approxi m ately AU$ 2 5 million is likely be req u ired. Invest o rs should note that there is no c e rtainty tha t the project will genera t e sufficient o perating s u rpluses to f u nd this or t h at the Company will be able to r a ise such funding when n eeded. Ho w ever, the C o mpany has c oncluded it has a reaso n able basis f or providin g the for w ard‐looking statements included in t his announ c ement and b elieves tha t it has a reasonable basis to expect i t will be able to fund t he develop m ent of the p roject. It is a lso possibl e that such f u nding may o nly be available on ter m s that may be dilu t ive to, or o t herwise aff e ct the valu e of the Company’s existing shares.

The C ompany c o uld also pur s ue other ‘v a lue realisat i on’ strategi e s to provid e alternativ e funding op t ions. These may incl u de a sale, a partial sale o r a change in the terms of the pres e nt project j o int venture . If it does, t h is could mat e rially reduc e the Comp a ny’s proportionate ownership of th e overall project.

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The S coping Stu d y is a proje c t level stud y and conse q uently the s ources, for m s and costs of the capit a l required to dev e lop the min e have not b een accoun t ed for in ca l culating the financial re t urns demo n strated by the Scoping Study. Given the uncertainti e s involved, investors sh o uld not make any investment decis i ons based solely on the results of the Sc o ping Study.

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Scoping Study Outcomes

Sign i ficantly, the study’s financial analysis demonstr a tes Galalar h as the potential to be a highly profi t able opera t ion, with an estimat e d pre‐tax n o minal NPV o f $231 milli o n, an IRR o f 150% and e stimated c a pital payba c k within a y e ar (8 months). Total estimated d evelopme n t capex is $ 2 4.4m, with annual oper a ting costs e stimated at $42.0m bas e d on t h e currently planned logistics program that involves trucking product from the mine s ite to an ar e a 63km aw a y, for transhipmen t outside Co o ktown.

In a d dition, Diat r eme has id e ntified potential impro v ements tha t offer furth e r enhance m ents to project econom i cs, incl u ding developing a purp o se‐built bar g e ramp clo s er to the m i ne site (approx. 4 kilom e ters away f r om propos e d ML a rea) at a lo c ation called Nob Point ( s ubject to v a rious Quee n sland Gove r nment app r ovals), which could offe r an esti m ated furth e r AU$20‐25 per tonne i n cost savin g s on curren t scoping study operatin g costs.

A fu r ther impro v ement coul d come fro m developing as a secondary silica pr o duct strea m an “ultra‐l o w iron” silica san d sub 50ppm Fe203 product, which i s currently t r ading at a significant pri c e multiple t o the sub 1 0 0ppm Fe20 3 pro d uct. This op t ion is curre n tly being e v aluated by a China based industry s p ecialist and at an independent laboratory in Ch i na.

Note: The study results in Table 1. Below, should be read in the context of the “Material assumptions used in Scoping Study Outcomes” numbered below (1‐15) and the cautionary statements set out above on pages 2 and 3 of this release.

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Table 1 – Galalar Silica Project – Key Scoping Study Outcomes

TECH NICAL PARA METERS
ANN UAL MINING	950 ,000 TONN ES
RECO VERY RATE	79 %
ANN UAL PRODU CTION	750 ,000 TONN ES
LIFE OF MINE (IN ITIAL)	15 YEA RS
PAYB ACK PERIO D	8 MONTH S

FINA NCIAL PARA METERS
COM (FOB MODITY PR ) ICE12	U S$75 (A$10 7) PER TONN E
CASH COST3	A$58.0 0 PER TONN E
STAR T UP CAPIT AL4	A$ 24.4 MILLIO N
LOM SUSTAININ G CAPITAL	A $3.7 MILLIO N
NPV (PRE‐TAX N OMINAL)5	A $231 MILLIO N
IRR ( PRE‐TAX NO MINAL)7	150 %

Material assumptions used in Scoping Study Outcomes

Exc h ange rate a s sumption is AUD/USD F X 0.70.
Co m modity Pric e is FOB – A s sumes pay m ent on deli v ery at vess e l in Cookto w n Port, buy e r responsible for ship m ent costs.
Cas h costs represent all dire c t cash oper a ting costs d ivided by the amount o f silica produced. Direct c ash ope r ating costs include all mining, proce s sing,transp o rt and tran s hipment c o sts.
Star t ‐up capital c osts repres e nt pre‐pro d uction requirements ex c lusive of w o rking capital and sustai n ing capi t al.
NPV has been di s counted using a discou n t rate of 10% and is a p r e‐tax nomi n al calculati o n. NPV and IRR are d iscounted from ramp u p of start‐up capital.

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Con t ingencies o f 25% on ca p ital costs and 10% on o p erating cos t s have been built into t h e financial mo d el.
Fina n cial model is pre‐tax based, as assumptions regarding level of debt (gearing levels) o r associate d fina n cing costs are undefine d within this level of stu d y and the m odel assum e s the proje c t is fully eq u ity fun d ed.
Co m modity pric e assumptio n of USD$75 per tonne F OB Cookto w n Port for “ l ow iron” silica sand suit a ble for p hotovoltaic manufactur e requirem e nts. Howev e r, no binding offtake ag r eements are in place at this tim e .
Rev e nue is cons t ant based on current prices and ign o res any projected grow t h in prices o ver time. 10. The Galalar Proj e ct has a current total Mineral Reso u rce Estimat e of 30.2 Mt (Cut‐Off‐ 9 9 % Sio2) incl u ding an I n dicated Resource of 21.50Mt (71% Indicated, 2 9 % Inferred) (refer ASX announcement 14 May 2 0 19).
Rec o veries of 79% to saleable product fr o m primary feed materi a l.
The production t arget is 15 y ears of mining at a rate of 950,000 tonnes per y e ar for a tot a l 14.25 mill i on ton n es of sand m ined, whic h is 66% of the Indicated Mineral Resource (21.5 million tonnes).
100% of the proposed 15 year mining activity falls within the Indicated Mineral Resource category. 14. Fina n cial model a ssumes Ql d Governme n t royalties a t A$0.90 per tonne 15. Note: This level of scoping study typically has degree of accuracy of plus or minus 30‐35%.

Diat r eme’s CEO, Neil McIntyre said the s t udy results demonstrated Galalar’s genuine po t ential to make a major contribution to F ar North Q u eensland’s e conomic fu t ure.

“Th e se results a r e tremendous, highligh t ing the opp o rtunity tha t exists at Galalar to create a long‐la s ting silica sand min e that creat e s new jobs a nd other ec o nomic ben e fits for the w hole com m unity, in pa r tnership with the traditional owners,” he sai d .

“Ha v ing recentl y signed a M O U for offta k e from the p roject (ref e r ASX anno u ncement 1 6 July 2019), there is alre a dy significant mark e t interest i n the produc t given the demand gro w th from Asi a ’s rapidly e x panding solar PV mark e t. Wit h added opp o rtunities to enhance th e se already e xcellent financial outcomes, we look forward t o advancing t his proj e ct towards near‐term development and creatin g an environmentally fri e ndly and s u stainable o p eration.”

The s coping stu d y’s release f ollows rece n t meetings i n Cairns th a t showed st r ong region a l support for the new mine. Key s takeholder s represented included H opevale Co n gress, toge t her with re p resentatives from Que e nsland Gov e rnment ag e ncies, the Office of Indi g enous Affai r s, the Department of the Prime Mi n ister and Cabinet, Nort h ern Australia Infrast r ucture Fun d (NAIF), Ho p e Vale Abo r iginal Shire C ouncil and C ook Shire C ouncil.

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Earlier last month, Diatreme announced the signing o f a non‐bin d ing MOU with Fengsha Group, China’s largest processor and s u pplier of photovoltaic ( s olar) and specialty high end silica sand, for the s u pply of up t o 750,000 ton n es per annum of silica product. The MOU’s ter m s included Fengsha providing produ c t development technic a l sup p ort, market access and logistics and to examine the potenti a l for direct p roject inve s tment.

Fina n cial analysi s of the proj e ct economics is based o n achieving product pri c ing for high grade “low iron” silica pro d uct suitable for the ma n ufacture of photovoltai c glass panels of USD$75 per tonne, d elivered F O B Cooktow n Port (AU D : USD exch a nge rate of 0.70).

Galalar Silica – Premium Quality Product – Price Expectations

The s coping stu d y silica pro d uct price as s umption of USD$75 per metric ton n e is based on the following;

Current p roject pro d uct testing t o date and e xpectation s on final product qualit y that clearly exceed market quality r e quirement s (refer spec i fications below)
Gathere d market intelligence fr o m various s i lica product offtakers a n d China bas e d glass ma n ufacturers whose product price expectatio n for the “ l o w iron” silica sand prod u ct are in th e range of USD$65‐$85 p er tonne (FOB ‐ Cooktown) depend e nt on final v olumes delivered , con t ractual commercial neg o tiations an d final del i vered prod u ct specifica t ions.

PARAME TER	CHINA R SPECIFIC EQUIRED ATION	GALALAR EX QUALITY PECTED
Particle s distribut ize ion	109‐700 (24‐140m microns esh)	109‐700 mic 98% in range rons
SiO2	>99.5%	99.7%
Fe2O3	<100ppm	85ppm
TiO2	<400ppm	140ppm
Al2O3	<1000pp m	500ppm
Table 2. Photovoltaic glass specif ication (Chin a) and Gala lar comparis on

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Ann u al operatin g costs are b ased on the currently pl a nned logistics program trucking pr o duct from m ine site to a layd o wn area (6 3 km away) t o be based a t the Mart o n boat ram p on the Endeavour Rive r west of Co o ktown, foll o wed by t r ansshipping product along the river (10 km) for t ransshipm e nt at a road s tead (subje c t to approval) just outs i de the C ooktown d e signated p o rt area.

The G alalar proj e ct has a current total Mineral Reso u rce Estimat e of 30.2 Mt (at a cut of 9 9% Sio2) including an Indi c ated Resou r ce of 21.50 M t (71% Ind i cated, 29% I nferred) (refer ASX ann o uncement 1 4 May 201 9 ). The stud y pre d icts an aver a ge mine pr o duction rat e of 138 tph (950,000tp a ) and final p roduction r a te of 110tp h (750,000t p a), with an estimat e d recovery r ate of 79% f rom raw (sand) product feed.

A mining lease a p plication f o r project is c urrently in a pre‐lodgm e nt process w ith Queen s land regula t ory agencie s in anti c ipation of f o rmal submi s sion. Preparation of ex t ernal indep e ndent envi r onmental s u rveys to be used for th a t sub m ission is cu r rently underway (wet s e ason study completed in January 2 0 19) with th e dry season studies anti c ipated to b e completed over the co m ing weeks.

Given the highly positive res u lts from th e scoping st u dy, the Co m pany is mo v ing forward actively wit h next step envi r onmental s t udies and s u bmissions, and advancing the per m itting and a p provals processes.

The C ompany h a s also identified a furth e r three (3) p otentially significant pr o ject enhan c ement opti o ns to the exis t ing study w h ich it inten d s to pursue actively to f urther pote n tially improve the proj e ct’s fundamental econo m ic retu r ns, comprising:

(1) Logistics and Infrastructure

• Development of a purpose built barge ramp facility closer to mine site .

The C ompany h a s identified a site some 3 km from t h e mine site a t Nob Poin t . Recent ba t hymetric surveys under t aken (checking water depths) indi c ate this area would be s uitable for t he establis h ment of a l o w intrusion barge ramp loading facility. T his option w ill require Q ueensland G overnment consent, sp e cifically an e xemption f rom the Sust a inable Port s Developm e nt Act (201 2 ).

Key p roject stak e holders Ho p evale Cong r ess are sup p orting the C ompany to actively pur s ue this option through pursuing engagement with t h e Queensland Govern m ent and rel e vant line m i nisters and s ee the facility (jointly u s ed) as a n important piece of co m munity acc e ss infrastru c ture.

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The use of a pur p ose built facility close t o mine site w ould save an estimated $20‐25/t o n operating c osts (sig n ificantly les s transport and tranship m ent costs). The Compa n y plans to a ctively purs u e this opti o n whilst running in p a rallel with t h e current s c oping stud y developm e nt scenario.

(2) Additional high‐value silica “ultra‐low iron” export product

The C ompany h a s currently u nderway a f urther testi n g program at an indep e ndent Chin e se laborato r y aimed at det e rmining if a further “ult r a‐low iron” S ub 50ppm F e203 prod u ct can be produced fro m the projec t within its 750,000 tonne product export program.

If su c cessful, thi s may result in a portion of the expo r ted produc t being furth e r processe d in China u n der a suitably neg o tiated tolling or joint venture arran g ement.

Current pricing f o r this “ultr a ‐low iron” silica produc t , from gath e red market intelligence and interac t ions with pot e ntial end us e rs is at a si g nificant premium to th e “low‐iron” p roduct, su b ject to final determined specificatio n s and offtake agreements. Whilst this mar k et is much s maller than the photov o ltaic silica m arket in siz e , it has the pot e ntial to incr e ase signific a ntly the av e rage price r e alised for e xported product if testi n g proves su c cessful and a suit a ble further p rocessing r e lationship in China can be established.

(3) Additional Resource Potential

Diat r eme has id e ntified expl o ration targ e ts relativel y close (starting within 1 kms) of the G alalar Min e ral Resource with the potenti a l for exploi t ation using t he currentl y planned p r oduct logist i cs system t h rough Coo k town port f o r ship loading.

The s e areas (ref e r Figure 3. ) are Elim Ro a d North (exploration ta r get 100m ‐ 1 B Tonnes) a nd Elim Road South (exploration tar g et 20m – 1 0 0mt). These areas will b e prioritised for resourc e drilling an d exploratio n with a vie w to adding potential further silic a tonnage t o the existin g known mi n eral resource and pote n tially additi o nal mine lif e extensions.

Cautionary Statement: The e xploration t arget potential grade a n d quantity i s conceptua l in nature, there has be e n insu f ficient expl o ration to e s timate a Mi n eral Resou r ce and it is u ncertain if f urther expl o ration will result in the esti m ation of a M ineral Res o urce.

Note – Refer AS X release da t ed 20[th] Jun e 2019 “ Boost for Galalar with sampling of regional exploration targets confirming continuity of high silica grades” , for further informa t ion on both areas and r e gional expl o ration targ e ts within the existi n g tenemen t .

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Figure 3. Elim R o ad North & Elim Road S o uth showin g future exp l oration tar g et planned d rill lines.

The C ompany w i ll provide further commercial scopi n g and feasi b ility study updates rega r ding these p roject enh a ncement in i tiatives as t h ese option s are further pursued an d progress.

Please refer to attached scoping study for further details.

Neil McIntyre Greg Starr Chief Executive O fficer Chairman Con t act – Mr Neil McIntyre ‐ Ph – 07 33 9 72222 We b site ‐ diatre m e.com.au E‐m a il ‐ manage r @diatreme.com.au

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Competent Person Statement

The information in this repo r t that relat e s to Explora t ion Results and Explora t ion Targets from the G a lalar Silica Proj e ct is based o n informat i on reviewe d and compi l ed by Mr. Neil Mackenz i e‐Forbes, a C ompetent P erson who is a Me m ber of the A ustralian In s titute of G e oscientists. Mr. Mackenzie‐Forbes i s a director o f Sebrof Pr o jects Pty Lt d (a con s ultant geol o gist to Diatreme Resour c es Limited) .

Mr. M ackenzie‐ F orbes has s u fficient exp e rience whi c h is relevan t to the styl e of minerali s ation and t y pe of depo s it und e r considera t ion and to t he activity b eing undert a ken to qualify as a Competent Pers o n as define d in the 201 2 Edition of the ‘A u stralasian C ode for Reporting of Ex p loration Re s ults, Miner a l Resources and Ore Re s erves’. Mr. Mackenzie‐Forb e s consents t o the inclusion in the r e port of the m atters bas e d on his inf o rmation in t he form an d context in which it appears.

The information in this repo r t that relat e s to Minera l Resources is based on information c ompiled by Brice Mutt o n fro m Ausrocks P t y Ltd who has significant experienc e in Industri a l Minerals and Quarry R e source ass e ssments. B r ice Mut t on has sufficient experi e nce which is relevant t o the style o f mineralisation and typ e of deposit u nder con s ideration a n d to the act i vity for whi c h he is und e rtaking to qualify as a Competent P e rson as def i ned in the 2 012 edition of the A u stralasian C o de for Rep o rting of Ex p loration Results, Mineral Resources a nd Ore Reserves (The J O RC Cod e ).

Bric e Mutton co n sents to th e inclusion i n the report on the matt e rs based o n their infor m ation in th e form and context in which it appears. T he corresp o nding JORC 2012 Table 1 is attache d to this rep o rt.

Forward looking statements

This document m ay contain f orward loo k ing statem e nts. Forwa r d looking st a tements ar e often, but not always, iden t ified by the use of wor d s such as “s e ek”, “indic a te”, “target ” , “anticipat e ”, “forecas t ”, “believe” , “plan”, “est i mate”, “ex p ect” and “intend” and s t atements t h at an event or result “may”, “will”, “ should”, “c o uld” or “mi g ht” occ u r or be achi e ved and ot h er similar e x pressions. Indications of, and inter p retations o n , future expected expl o ration results or techni c al outcomes, productio n , earnings, financial po s ition and p e rformance a re also for w ard‐ looking stateme n ts.

The f orward‐loo k ing statem e nts in this presentation are based on current in t erpretation s , expectati o ns, estimat e s, assumptions, fo r ecasts and p rojections a bout Diatre m e, Diatreme’s projects and assets a nd the indu s try in whic h it ope r ates as well as other factors that m a nagement b elieves to b e relevant a n d reasonab l e in the circumstances a t the date that such s t atements a r e made.

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The f orward‐loo k ing statem e nts are subject to tech n ical, busine s s, economic, competitiv e , political and social unc e rtainties an d contingen c ies and ma y involve kn o wn and unknown risks a nd uncertai n ties. The f o rward‐looki n g stat e ments may prove to be incorrect. M any known and unkno w n factors could cause a c tual events o r results to diff e r materially from the es t imated or anticipated e v ents or res u lts express e d or implie d by any for w ard‐lookin g stat e ments. All f o rward‐loo k ing statements made in this presentation are qualified by th e foregoing c autionary stat e ments.

Disclaimer

Diat r eme and it s related bo d ies corpora t e, any of th e ir directors , officers, e m ployees, ag e nts or cont r actors do n o t mak e any repre s entation or w arranty (either expres s or implied) as to the ac c uracy, corr e ctness, co m pleteness, ade q uacy, reliability or likeli h ood of fulfi l ment of an y forward‐lo o king state m ent, or any e vents or re s ults expres s ed or i m plied in an y forward lo o king statement, except t o the extent required b y law.

Diat r eme and it s related bo d ies corpora t e and each o f their resp e ctive directors, officers , employees , agents and contractors disclaims, to the maximum e xtent permi t ted by law, all liability and responsi b ility for any direct or in d irect loss or damage w hich may b e suffered b y any perso n (including b ecause of f a ult or negli g ence or otherwise) through use o r reliance o n anything c ontained in or omitted f rom this pr e sentation.

Oth e r than as re q uired by la w and the A S X Listing Rules, Diatreme disclaims a ny duty to u pdate forw a rd looking stat e ments to r e flect new d e velopment s .

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GALALAR SILICA SAND PROJECT

SCOPING STUDY SCOPING STUDY SEPTEMBER 2019 AUGUST 2019

ASX:DRX DIATREME.COM.AU

1 Galalar Silica Sand Project Scoping Study September 2019

Contents
Galalar Project Objectives	2
Key Strategic Benefits	2
Alternatives Investigated	2
Location	3
Tenement	4
Native Title	5
Environmental Assessment	5
Geology	8
Exploration	9
Mineral Resource	15
Metallurgical Testwork	18
Production Target	23
Proposed Production Schedule	24
Mining Operations	24
Processing Plant	25
Power Supply	26
Water Supply	27
Rehabilitation	27
Product Logistics	27
Shipping	29
Personnel	29
Market and Pricing	29
Revenue	30
Cost Estimation	30
Forecast Financial Evaluation	35
Future Technical Studies	37
Development Timeframe	38
Project Funding	38
Project Delivery Schedule	38

FIGURES

F1 Project location map	3
F2 Exploration tenement	4
F3 Vegetation communities map	6
F4 Mineral Resource drill locations	10
F5 Exploration targets	12
F6 Elim Road North & South showing future drill lines	14
F7 Surface contours (5m interval)	15
F8 Drill hole locations and resource boundary	16
F9 Three typical longitudinal cross-sections	17
F10 IHCR shaking table separation of silica and heavy minerals	19
F11 Mineral technologies 150tph MG12 spiral flowsheet	25
F12 IHCR flowsheet for upgrading spiral product to low-iron silica sand	26
F13 Global growth in the silica sand market	31
F14 Pre-tax NPV sensitivity	37
F15 Life of mine undiscounted cash flow	37
TABLES
T1 Regional exploration targets within EPM17795	13
T2 Mineral Resource estimate	17
T3 IHCR 6 bulk sample characterisation	18
T4 IHCR first stage shaking table product assays	19
T5 IHCR second stage shaking table product assays	20
T6 Bulk sample analysis before processing (BDRI report)	21
T7 Processing stages and Fe2O3reduction (BDRI report)	21
T8 Particle size distribution and chemical assays (BDRI report)	22
T9 Hot acid leach test results (BDRI report)	23
T10 Production Schedule and JORC Mineral Resource Indicated Category	24
T11 Estimated power demand for the processing plant	26
T12 Photovoltaic glass specification and Galalar comparison	30
T13 Estimated capital and operating costs	32
T14 Capital cost estimate for Galalar-Cooktown road upgrade	34
T15 Processing plant capital cost estimate	35
T16 Cost and revenue estimates	35
T17 Estimated unit cost per tonne of final product	36
T18 Pre-tax NPV sensitivity against base case	36
T19 Pre-tax NPV sensitivity against base case discount rate	36
T20 Target project delivery schedule	38

2 Galalar Silica Sand Project Scoping Study September 2019

Galalar Silica Sand Project

Objectives

The project objectives are:

To become a globally recognised supplier of high purity silica sand to world high clarity glass markets.
To continue exploration near the Galalar mineral resource to produce sufficient data that will enable estimation of a Proved Ore Reserve suitable for establishment of an efficient silica sand mining operation.
New infrastructure for the Hope Vale and Cooktown areas.
Increased employment and business activity for the Hope Vale and Cooktown region.
Not a fly-in fly-out operation. Employees to live locally and travel daily to work.
Royalties for Hope Vale Congress and Qld State Government.
New business opportunities for local contractors and service industries.
To define at least 20 million tonnes (mt) of sand reserves for a mine life in excess of 20 years.
To establish an efficient, safe and environmentally acceptable mining operation through co-operation with Hope Vale Congress and Government regulators.
To establish an efficient, safe and environmentally acceptable system for transporting the product from the Galalar project site to international customers.
To responsibly expand the business to meet the world demand for high purity silica sand required for the production of solar panels and other ultra-clear glass products.
To be recognised as a valuable contributor to the local community by employing locally and supporting local businesses.

Key Strategic Benefits

Major new long-life business for Far North Queensland that will commence as a medium scale silica operation with potential to expand and grow as the markets and local infrastructure are developed.

Alternatives Investigated

Areas to the north and close to the existing Cape Flattery Silica Mines (CFSM) were investigated as potential sites for silica sand and heavy mineral exploration drilling.

There are no existing land access routes to these areas and the only practical access route for exploration and operational logistics is by barge through the Cape Flattery Port and across land held under mining tenements held by CFSM.

Diatreme was unable to negotiate an arrangement with CFSM for access across its tenements and subsequently focussed on the Cape Bedford area to the south.

Existing roads from Hope Vale to the Cape Bedford area are used for access to the southern exploration targets and the Hope Vale Congress contractor (Nambal) was engaged to construct tracks for exploration activities.

3 Galalar Silica Sand Project Scoping Study September 2019

Location

The Galalar project is located around 20km north of the port of Cooktown and 20km east of the town of Hope Vale (Figure 1). The corporate office of Diatreme Resources Limited is located in Brisbane, the capital city of Queensland.

The project site is accessible by public roads which are currently maintained by the Queensland State Government and the Hope Vale Aboriginal Shire Council. Galalar lies within an extensive sand dune system which also hosts the Mitsubishi-owned Cape Flattery Silica Mine.

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GALALAR PROJECT
COOKTOWN PORT 100KM
DIATREME HEAD OFFICE
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Figure 1: Project location map

4 Galalar Silica Sand Project Scoping Study September 2019

Tenement

Diatreme holds an Exploration Permit for Minerals (EPM17795) which covers the majority of the quaternary sand dune formations from Cape Bedford in the south to Lookout Point in the north and surrounds the tenements

of the Cape Flattery Silica Mine (Figure 2).

EPM17795 spans approximately 55km north to south and 25km east to west.

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Figure 2: Exploration tenement

5 Galalar Silica Sand Project Scoping Study September 2019

The Galalar project site is located at the southern end of EPM17795. Diatreme applied for EPM17795 on 22/08/2008 and it was granted on 22/06/2016 for a duration of 5 years (expiring 21/06/2021) targeting high grade silica sand and heavy minerals. EPM17795 spans across 167 sub-blocks and the original EPM licence conditions require this area to be reduced to 100 subblocks during 2019 and to 50 sub-blocks during 2021.

On 30/07/2019, following a submission from Diatreme, the regulator, Queensland Department of Natural Resources, Mines and Energy (Qld DNRME) amended the original licence terms to allow the Company to relinquish only 20 sub-blocks during years 4 & 5, retaining 147 subblocks within the EPM17795 area.

Diatreme has engaged AusRocks Pty Ltd to assist with an application to Qld DNRME for a mining lease for the Galalar project. The area of the mining lease is being finalised and will ideally cover the entire area of the Galalar mineral resource, the potential water bore sites, and provide access from a public road.

Native Title

Diatreme executed a Conduct and Compensation Agreement in January 2017 and a Cultural Heritage Agreement in June 2017 with the traditional owners, Hope Vale Congress. A cultural heritage survey over the Nob Point to Elim Beach area in the southern part of EPM17795 was completed in August 2017 prior to commencing ground exploration activities. Exploration activities require a representative of the traditional owners to be present during ground disturbing activities.

Hope Vale Congress holds a 12.50% interest in the Galalar project as the representative body for the traditional owners of the area where the project and the exploration tenement are located. The traditional owners hold freehold title and native title over the entire exploration tenement which includes the project area.

Conduct and Compensation and Cultural Heritage agreements were executed allowing both parties to proceed using a partnering approach to project definition and development.

Progress with the project to date has proven these agreements are providing benefits to both parties with open communication and providing a clear path for exploration and development activities. Representatives of Hope Vale Congress attend all Government and line agency meetings with Diatreme to assist in advancing the project.

Environmental Assessment

Biotropica Australia was engaged by Diatreme to undertake the terrestrial ecology component of the project.

For the purposes of this survey, a nominal project area was defined to cover the footprint of the likely components of the project (essentially the mining areas and some associated processing and administrative infrastructure) plus a small buffer area.

This area was current at the time of the wet season survey but could change, and future surveys may be required when planning is further advanced. The detailed findings from the survey by Biotropica Australia are presented in the report “Wet Season Survey Summary”.

The project area is located near Cape Bedford and covers approximately 206ha. Figure 3 shows the project area that was studied and the vegetation communities that were mapped.

The ecological assessment will have to meet Environmental Impact Statement (EIS) guidelines and comprise a wet season and dry season survey component to properly consider the site’s ecological values.

Meetings were held with the Hope Vale community prior to commencing on-ground exploration activities.

6 Galalar Silica Sand Project Scoping Study September 2019

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Figure 3: Vegetation communities map

7 Galalar Silica Sand Project Scoping Study September 2019

The wet season survey was completed in January 2019 and the results are summarised in the report. This interim report details only the ecological constraints identified so far. A comprehensive assessment of overall values, impacts, mitigation and offsets in support of the EIS will be included in the final report after further surveys have been concluded.

A desktop review of online database searches and spatial datasets was conducted on relevant Commonwealth and State resources prior to ground survey.

To meet the desktop research requirements in the Flora Survey & Assessment in Northern Queensland (Wannan 2012), EPBC Act (Environment Protection and Biodiversity Conservation Act 1999) Protected Matters Search Tool (PMST) and NC Act (Nature Conservation Act 1992), Wildlife Online searches were performed for the project area with the recommended buffer (25km buffer for the Cape York Bioregion).

To obtain a more accurate determination of the species likely to occur within the project area, a further search of the PMST databases was undertaken, with a 3km buffer, using centre point coordinates of -15.3248, 145.2758.

Furthermore, a search of the Wildlife Online database using the same coordinates, returned only one species and therefore to ensure that all potential species are considered, the desktop results from Wildlife Online searches considers the 25km search.

The results of the searches were used to gain an insight into the Endangered, Vulnerable and Near Threatened (EVNT) species and Matters of National and State Environmental Significance (MNES / MSES) that may be present in the project area, and to allow targeted searches for these during field-based studies.

Between 21-25 January 2019 ecologists from Biotropica Australia conducted field surveys of the project area, comprising the wet season survey component of the project. This followed a reconnaissance survey undertaken on 8th and 9th January 2019 for the purpose of scoping the detailed work.

The closest Bureau of Meteorology Station is at Cooktown Airport which is less than 10km from the project area.

The data from this weather station shows there is a distinct wet season between December and April, with 88% of the annual rainfall falling within these months.

Whilst the temperature does also vary, it is not as significant as the rainfall. This survey was completed in January which is an appropriate timeframe for a wet season survey.

Surveys addressed the following elements:

Verification of mapped remnant and non-remnant vegetation;
Identification and prevalence of exotic species;
Identification and prevalence of native flora, including the type and locality of habitats that may support conservation significant flora species (EVNTs) listed under the EPBC Act and/or NC Act;
Identification and prevalence of native fauna, including the type and locality of habitats that may support conservation significant fauna species (EVNTs and migratory) listed under the EPBC Act and/or NC Act;
Identification of habitat values – including remnant and non-remnant vegetation and watercourses;
Gaining an understanding of ecological processes and systems present.

As noted, the MSES framework was used to assist in the assessment of values. The legislative ramifications will be addressed in the EIS. Further information is required, most of which can be collected during dry season surveys, on the presence and distribution of the following, before potential impacts can be addressed in the EIS:

Verification of the orchid species presence and their abundance and distribution;
Targeted flora surveys for Acacia solenota to determine presence or absence;

8 Galalar Silica Sand Project Scoping Study September 2019

Targeted Myrmecodia beccarii studies to confirm abundance and distribution;
Targeted bat surveys to confirm their use of the site e.g. whether they breed or roost within the project area;
Targeted surveys identifying distribution and abundance of Ctenotus rawlinsoni within the project area and surrounds;
Wetlands (and associated groundwater and surface water hydrology);
Marine Plants (linked to wetlands and hydrology issues);
There is one RE which remains undetermined as there is no RE within the Regional Ecosystem Database that matches the description of that recorded within the project area. This RE would require clarification with the Queensland Herbarium.

Geology

The Cape Bedford to Lookout Point 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. Cape Flattery is centrally located within this region.

The large transgressive elongate parabolic sand dunes evolved under conditions of persistent south-easterly winds on an exposed coastal aspect with sand supplies continually provided by an erosional shoreline during marine transgressions. Multiple episodes of dune building are evident.

The geology of the area is dominated by Cenozoic age sandy sequences overlying Mesozoic and Palaeozoic sediments which appear on the Cooktown 1:100,000 Geological Map.

The Devonian Hodgkinson formation comprising fine to medium grained greywacke interbedded with siltstone, mudstone and minor conglomerate crops out to the south and west of the project area and to the northeast near Cape Flattery. These rocks have been intruded by granites to the west of Hopevale and near Cooktown. Remnants of Mesozoic sandstone (Dalrymple Sandstone and Gilbert River Sandstone) overlie the Hodgkinson Formation.

The principal sand bearing units have a north-westerly trend and are largely of Pleistocene and Holocene age, although younger dunes formed by more recent wind erosion are common. Pleistocene dunes are commonly parabolic in shape and have thick subsoil (A2) horizons overlying orange, yellow or brown coloured sand. In places Holocene age dunes overlie the older sand sequence particularly closer to the coast. Quaternary units comprising sand, silt and clay often with blocks of Mesozoic sandstone are found close to the Mesozoic and Devonian rocks.

9 Galalar Silica Sand Project Scoping Study September 2019

Exploration

There is limited historical exploration in the project area due to its relative remoteness and the sand dune system which is difficult to access by vehicle. Coupled with locally steep terrain, soft sand, and dense vegetation in places, only rudimentary investigations of the dunes had previously been completed.

Diatreme has identified six parameters as a strategy to prioritise exploration target areas:

Geology – Preserved older dune systems with welldeveloped podzolisation and preservation of the A2 horizon hosting the leached white sand;
Sand Quality - Identification of >99% SiO2 or containing >1% heavy minerals;
Size – Identify exploration targets in excess of 20 Mt;
Access – Close to existing road infrastructure for access and logistics;
Environmental – avoiding identified environmentally significant areas;
Cultural – respect for cultural heritage and traditional owners’ values.

In September 2017, exploration commenced utilising a company owned air-core drilling rig in the project area.

During September and October 2017, 55 holes were drilled totalling 1,276 metres and an additional 41 holes totalling 824 metres were drilled in the June 2018 quarter.

The dune sand which is the target for exploration comprises white to cream and light grey, fine grained sand with some areas of yellow, orange and brown colouring.

Drilling did not indicate any clay bands within the upper sand unit.

The base of the target geological sequence comprises fine grained red to brown coloured sand representative of an older weathering surface of the Devonian Age Hodgkinson Formation.

The target silica sand is generally fine grained, although logging indicated some fine to medium grained sections. Detailed chemical analyses showed the majority of the samples contained greater than 98.5% SiO2, with variable proportions of Al2O3, Fe2O3, TiO2 and Cr2O3 indicating the presence of clays, iron oxides and heavy minerals.

Five drilling campaigns have been undertaken between September 2017 and November 2018 of which 75 holes were used to define JORC Compliant Indicated and Inferred Resource boundaries for both the East and West Nob Point dunes.

Drilling samples for all drilling campaigns were delivered to Australian Laboratory Services Ltd (ALS) for standard silica sand assays and selected samples have also had particle size distribution (PSD) analysis.

Drilling to date within EPM17795 has been on Lot 35/SP232620, a freehold lot of 110,000 hectares within the Hope Vale Aboriginal Shire. The Galalar project target sand is high value, high silica sand that will, subject to approvals, be mainly shipped for sale to export markets.

Drill holes numbered CB001 to CB095 from the first four drilling campaigns were sampled and logged in 3m intervals.

The most recent drilling campaign (CB096 to CB114 and twinned holes) was sampled and logged in 1m intervals. Chip tray samples were also collected for the sampled intervals and the trays were photographed and stored. Figure 4 overleaf is a map showing the locations of drill holes used for the Galalar project’s Mineral Resource estimate.

10 Galalar Silica Sand Project Scoping Study September 2019

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Figure 4: Mineral Resource drill locations

11 Galalar Silica Sand Project Scoping Study September 2019

In March 2019 a regional sampling program across all potential silica sand resource areas within EPM17795 was completed. This program used a helicopter for access to the sand dunes where the vegetation was low enough to allow safe landing. One metre sand samples were taken at each location using a hand auger.

The aim of the program was to;

Ground truth assumptions made from satellite images of target areas.
Collect representative samples of sand for quality analysis.
Determine land access options to target areas.
Reconcile historic exploration, namely drill hole location, quality data and analysis.

The majority of the areas sampled using a helicopter for access are not easily access by land. There are some minor existing vehicle tracks which would allow dry season activity close to the tracks. For this reason the majority of the exploration area has not previously been explored.

This sampling program using a helicopter allowed access to most of the major dunes in locations where there was no or minimal vegetation cover. Use of the helicopter also gave a significantly better visual assessment of sand dunes for size, continuity and sand colour.

The sampling was completed using a hand auger to vertically sample the first metre interval below the identifiable topsoil layer. Generally, at least 2 samples were collected at most sample locations, at least 100m apart to determine potential variation in the sand dune. The samples were dispatched to independent laboratory ALS in Townsville for size analysis and XRF assays.

Results confirmed the existence of high purity silica sand in most target areas confirming the targets have favourable size analysis, SiO2 and Fe2O3 grades to justify further exploration. The Gubbins Range area contained high quality silica sand and higher TiO2 grades than elsewhere in the EPM.

The regional exploration program identified four priority target areas for future exploration:

Elim Road South. This area is closest to the existing defined Galalar Mineral Resource and would use the currently planned product logistics system through Cooktown port for ship loading.
Elim Road North. This area is close to Elim Road South and is on the northern side of Elim Road. It would also use the Galalar product logistics system.
Casuarina Hill. This dune system adjoins the Cape Flattery Silica Mines (CFSM) operation where CFSM has mined up to the tenement boundary. There are currently no land access tracks through EPM17795 and exploration activities are hindered by dense vegetation. This area is close to the port of Cape Flattery and product logistics through this State owned port will require negotiations for an easement through a tenement held by CFSM.
Gubbins Range. This sand dune system is located midway between the Galalar project site and the CFSM operation. Assays of the auger samples from this area indicated the presence of higher heavy mineral grades than elsewhere in the EPM along with the high quality white silica sand found across most of the tenement.

12 auger samples were collected from this dune system at six locations on three of the major sand dunes. TiO2 grade ranged from 0.32% to 1.17% and averaged 0.8%.

This confirms historic sampling conducted in the dune system in 1981 by T. Essington Breen exploring under ATPs 2546M & 2546M (EPMs). Samples from the north, south, east and west of the Gubbins Range sand dune system contained on average 1.5% heavy minerals within the high grade white silica sand. Analysis of the HM indicated a mineral assemblage of 75% ilmenite, 10% zircon and 5% rutile from the shallow auger samples.

12 Galalar Silica Sand Project Scoping Study September 2019

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Figure 5: Exploration targets

13 Galalar Silica Sand Project Scoping Study September 2019

Target	Description	Prelim Vol	Resource Target	Ground Access Comments
Casuarina Hill	Immediately south of CPSM working pit and closest to port facilities Large high dune covered in vegetation and large stand of Hoop Pine Difficult to access via vehicle, foot and helicopter	1,200m Long x 800m wide up to 30m high 28,800,000 m3	20 to 40 Mt	Access from Beach to southern area. Best access will be from Mining Lease
Casuarina West	Long sand dune south of mine workings Difficult to access	2,000m long by 250m wide up 20m high 10,000,000 m3	5 to 20 Mt	Access from Beach
Elim Road North	North of Elim Road, very large forest covered dune system. Access is very difficult	6km long, 3km wide and 50m high 900,000,000 m3	100 to 1,000 Mt	Access from Elim Road, will need a new track.
Elim Road South	South of Elim Road, northern continuation of Nob Point Dune System Difficult to access	4km long, 800 to 1,200m wide and 20m high 80,000,000m3	20 to 100 Mt	Access off Elim Road from the north, and Nob Point Road from the west.
Silica 01	Large area of exposed sand dunes clustered together. Iron stained sand in colour probably from remobilisation.	6 x 1km long, 500m wide up to 50m high 60,000,000 m3	20 to 80 Mt	Near access track from west
Knob Hill	Large dune parallel to Elim Road north and west of coloured sands Basement is visible Appears slightly contaminated by basement May be part of coloured sands		-	Access from Elim Road, will need a new track.
Silica 02	Large sand dune system covered in vegetation Hard to access	8,000m long, 1,250m wide and 30m high 300,000,000 m3	50 mt to 500 Mt	Access from beach
Wraight West	Dune system immediately west of ML 7069 Mt Wraight which is northern Satellite ML	1,000, long, 800m wide and 20m high 16,000,000	5 to 20 Mt
Gray Hill	Longitudinal dune running NW from coloured sands, with a large parabolic sand dune adjacent known as Grey Hill.	6km long, 200m wide, 40m high 24,000,000 m3	10 to 30 Mt	Access from beach at Elim
Big Bertha	Longitudinal and exposed dune system about 10km NW of Elim Beach. Large exposed dune	1,200m long, 600m wide and 40m high	10 to 50 mt	An existing local road accessing McIvor River Road approximately 4km to the west
Gubbins Range	Large parabolic dune with associated elongate parabolic dunes. Intersects Gubbins Range basement rocks south of McIvor River	6,000m x 200m		Potential access from west from McIvor River Road

Table 1: Regional exploration targets within EPM17795

14 Galalar Silica Sand Project Scoping Study September 2019

The March 2019 regional exploration program was followed by a hand auger reconnaissance program in May 2019 to investigate the Elim Road South and Elim Road North targets for possible extensions to the Galalar mineral resource. The locations of these potential resource areas and future exploration drilling lines are shown in Figure 6.

Four metre deep vertical auger holes were drilled and samples taken for each one metre interval. The holes generally produced three samples suitable for analysis from one metre depth to four metres depth with the top one metre excluded due to a significant quantity of topsoil at the surface.

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Figure 6: Elim Road North & South showing future drill lines.

15 Galalar Silica Sand Project Scoping Study September 2019

Mineral Resource

Results from ALS assays of the samples confirm the sand dunes at Elim Road South and Elim Road North contain high purity silica sand. Nearly all auger holes returned white sand samples with higher than 99% SiO2.

Diatreme engaged AusRocks Pty Ltd to complete a Mineral Resource estimate for the Galalar project. AusRocks is a Brisbane-based resources consultancy with expertise in industrial minerals and quarrying. AusRocks determined that the exploration program to date had obtained sufficient information to enable estimation of an Inferred Resource for Galalar.

These are long established stabilised dunes mapped and interpreted to have well developed podzolic profiles containing high purity silica sands. They are an extension of the Galalar dune system and are likely to contain significant volumes of silica sand as these dunes are large and extensive.

The topography of the area ranges from the coastline up to 68 metres above sea level (RL) at the peak of the dunes. The main topographic features of the resource area are two sand dunes.

Elim Beach Road runs east-west between these two dune areas and the best located areas within the tenement for the existing product land transport route to Cooktown. These two areas are also further from the coast and more distant from environmentally sensitive wetlands.

The western dune resembles a hill with a gentle increase in gradient from all sides to the peak at approximately 60m RL AHD. The eastern dune has a maximum height of 68m and has varying undulations from weathering on the surface and a blown-out area on the eastern boundary. Natural slopes on the north-eastern boundary of this dune are close to 20 degrees, however these steep areas are of limited extent. Figure 7 is a topographic map of the project area showing surface contours at an interval of 5m elevation.

Future work will involve construction of tracks for a deep drilling program to obtain additional data for white sand depth and one metre assays for use in estimation of potential Inferred resources for these areas.

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Figure 7: Surface contours (5m interval)

16 Galalar Silica Sand Project Scoping Study September 2019

Diatreme has completed five drilling programs within EPM17795 over a three-year period to progressively identify and refine the Galalar resource area. Ausrocks reviewed all mineral samples and metallurgical testwork data to ensure only valid and relevant data was used for the resource estimate. Data from 75 drill holes was used as inputs to the mineral resource model. AusRocks used Surpac Software 6.6.2 and modelled the data using the inverse distance interpolation method.

A review of all silica assays from the Galalar area indicated that SiO2 content by percentage would be used to quantify in-situ material as a resource. From the 75 drill holes that were used in the resource estimate, the %SiO2 in the target silica sand zone varied from 98.2% to 99.99%, with a weighted average by drill hole composite of 99.25% of all the assayed values.

This data and the bulk sample data indicated that >99% SiO2 in-situ material could be processed into a >99.9% SiO2 product and meant that an overall cut-off grade of >99% SiO2 was appropriate to use for the Indicated and Inferred Resource estimate completed in accordance with the JORC Code.

The drill hole data was input to Surpac 6.6.2 Software and modelled using the inverse distance method. The resource was defined as the material that could be blended to create high value silica sand products (>99%).

Digital Elevation Models (DEM) were created for the top and the base of the resource and volumes calculated between the two DEMs and the lateral constraint of the resource boundary. The southern constraint is defined by the intersection of the two DEMs, the western constraint is a 50m offset from a creek, and the northern and eastern constraints are interpreted from the extent of the drilling. Drill hole data indicates the resource is open to the north and the east.

Geological work and resource modelling indicate the East Nob Point deposit averages 16.7m vertically, 2,000m long (N-S) and 700m wide. West Nob Point is 650m long and 400m wide. Figure 8 shows the indicated and inferred resource boundary, drill hole locations and cross-section lines used for the cross sections that follow.

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Figure 8: Drill hole locations and resource boundary

17 Galalar Silica Sand Project Scoping Study September 2019

Three typical longitudinal cross-sections are shown in Figure 9. The vertical axis interval on the cross sections is 10m and the horizontal axis interval is 250m.

A-AA

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B-BB

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C-CC

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Figure 9: Three typical longitudinal cross-sections

Mineral Resource Estimate:

Area	Cut-off SiO2%	SiO2% Grade	Indicated (Mt)	Inferred (Mt)	Inferred & Indicated(Mt)
East Nob Point	99%	99.26%	20.2	6.6	26.8
West Nob Point	99%	99.16%	1.3	2.1	3.4
Total			21.5	8.7	30.2
* Resource Estimate current as at 20 March 2019

Table 2: Mineral Resource estimate

18 Galalar Silica Sand Project Scoping Study September 2019

The resource at East Nob Point is open on the northern and eastern sides, and West Nob Point is open to the north. This provides opportunities to increase the Mineral Resource across all geological confidence intervals (Inferred, Indicated, and Measured). Analysis of the sample data revealed that there was little correlation between the colour of the sand in the resource zone and the SiO2 grade.

Density testing was completed on 55 samples taken using a Dormer push tube. Analysis of the samples provided an estimated average bulk density of 1.62 tonne per cubic metre which was suitable for use in the Mineral Resource Estimate. The resource is currently reported as in-situ tonnage with a moisture content of 2.5%. These density test results are suitable for use in future Mineral Resource estimates in this area.

To satisfy the requirements of the JORC code for future Mineral Resource updates the following drilling grid will be used as a guideline:

Inferred Mineral Resource 200m x 200m drill spacing.
Indicated Mineral Resource 75m x 75m drill spacing.

Metallurgical Testwork

Six bulk samples from six drill holes underwent preliminary metallurgical testing by IHC Robbins (IHCR) using gravity separation on wet shaking tables to determine the recovery and grade of potential silica products.

In July 2018, IHCR was engaged to process 500 kg of sample extracted from a 1,800 kg bulk sample taken from 32 drill holes across the resource. Spiral separators typical of the gravity separation equipment used in commercial processing plants were used to remove heavy minerals from the sample and produce a silica sand product.

A Chinese glass industry research group, Bengbu Design & Research Institute (BDRI) was engaged in December 2018 for metallurgical testwork on a 355 kg sample from selected intervals of 19 drill holes.

This testwork was to apply various metallurgical processes to the sample with the objective of reducing the Fe2O3 grade below 100ppm and as low as reasonably possible using standard processing equipment and methods.

IHCR Shaking Table Testwork

Preliminary metallurgical testwork was undertaken on six bulk samples from six drill holes (CB037, CB038, CB047, CB048, CB053, CB054) from the October 2017 drilling program. Each sample was initially characterised to determine the amount of oversize (+1mm), slimes (-45 micron) and heavy minerals (+2.8 SG) in each sample. The results of the head feed characterisation testwork are presented in Table 3.

Sample ID	Sample (kg)	Oversize (%)	Slimes (%)	HM (%)
CB037 (3-21m)	95	0.3	2.5	0.19
CB038 (3-21m)	92	0.1	1.4	0.32
CB047 (3-27m)	133	0.0	2.1	0.06
CB048 (3-27m)	121	0.0	2.0	0.18
CB053 (3-21m)	96	0.0	2.2	0.16
CB054 (3-12m)	60	0.1	3.1	0.18

Table 3: IHCR 6 bulk sample characterisation

The sample characterisation showed that all samples had low levels of oversize and slimes and were low grade in heavy minerals.

The bulk samples were processed through two stages of wet shaking table separation to remove heavy minerals and produce a primary silica product from the first stage and a secondary silica product from the second stage of separation. Figure 10 overleaf is a photo of the first stage of separation showing good separation of heavy mineral from the silica sand.

19 Galalar Silica Sand Project Scoping Study September 2019

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Figure 10: IHCR shaking table separation of silica and heavy minerals

Product recoveries and grades for the first stage of separation are presented in Table 4 and for the second stage of separation are in Table 5.

The second stage was reprocessing the tailings (HM component) produced from the first stage.

Sample ID	Product Recovery (%)	SiO2%	Al2O3%	Fe2O3%	TiO2%
CB037	86	99.67	0.04	0.01	0.02
CB038	69	99.78	0.06	0.02	0.03
CB047	79	99.66	0.04	0.01	0.02
CB048	83	99.87	0.04	0.01	0.02
CB053	84	99.61	0.05	0.01	0.02
CB054	84	99.64	0.05	0.01	0.02

Table 4: IHCR first stage shaking table product assays

20 Galalar Silica Sand Project Scoping Study September 2019

Sample ID	Product Recovery (%)	SiO2%	Al2O3%	Fe2O3%	TiO2%
CB037	12	99.5	0.11	0.03	0.07
CB038	28	99.5	0.11	0.04	0.07
CB047	18	99.5	0.06	0.01	0.03
CB048	14	99.5	0.06	0.02	0.05
CB053	15	99.3	0.12	0.03	0.07
CB054	15	99.3	0.15	0.04	0.08

The first stage products had high recovery and high SiO2 grades in the range 99.61% to 99.87% and low Fe2O3 grades in the range 0.01% to 0.02% (100ppm-200ppm). The grade of the primary products indicates this silica sand is suitable for high clarity glass production. The second stage products had higher Fe2O3 and would be suitable for lower clarity glass production.

IHCR Spiral Separator Testwork

Diatreme engaged IHC Robbins to complete full scale spiral separation testwork on a bulk sample that was taken from 32 drill holes across the entire resource area during June 2018. Diatreme provided 1,800kg of sample and IHCR extracted a representative 500kg sample for process testwork using an MG12 spiral and a MT10 spiral.

Characterisation results for the 500kg bulk sample:

•	Oversize +1mm	0.0%
•	Slimes -45 micron	3.0%
•	Heavy mineral +2.85SG	0.19%

The MG12 spiral performed better than the MT10 spiral. The results for product produced from the MG12 spiral were:

Silica sand recovery 88.3%
SiO2 grade 99.9%
• Al2O3 grade 0.07% • Fe2O3 grade 0.02% • Ti0[2] grade 0.03%

BDRI Low Iron Bulk Sample Testwork

BDRI was engaged by Diatreme in November 2018 for metallurgical testwork on a 355 kg sample from selected intervals of 19 drill holes. This testwork was to apply various metallurgical processes to the sample with the objective of producing a silica product with higher than 99.75% SiO2 and Fe2O3 grade less than 100ppm and as low as reasonably possible using standard processing equipment and methods. BDRI conducted the testwork during November and December 2018 and produced a technical report in December 2018.

The BDRI testwork produced high purity silica sand products with specifications as follows:

Silica sand recovery (%) 78.82 - 79.40
• Silica sand grade (SiO2%) 99.66 - 99.77 • Al2O3 (%) 0.040 - 0.058 • Fe2O3 (%) 0.0083 - 0.0088 • TiO2 (%) 0.013 - 0.015 • 125-710 micron (%) 99.13

BDRI produced a product with 83ppm to 88ppm Fe2O3 using non-chemical processes involving:

3 stage gravity separation on spirals
Attritioning
Classification
Magnetic separation

21 Galalar Silica Sand Project Scoping Study September 2019

BDRI then used chemical processes (hot acid leaching) on this product to further reduce the iron level by removing surface iron attached to the silica grains. Various types and concentrations of acid were used and the specifications for the silica product produced from the chemical processes were:

•	Silica sand recovery (%)	78.41 - 78.66
•	Silica sand grade (SiO2%)	99.76 - 99.82
•	Al2O3(%)	0.027 - 0.031
•	Fe2O3(%)	0.0072 - 0.0074
•	TiO2(%)	0.015 - 0.017
•	125-710 micron (%)	99.24

An additional acid leaching test using concentrated sulphuric acid reduced the Fe2O3 grade to 0.0064% (64 ppm). This demonstrated the limit of iron reduction with an extremely aggressive chemical process and this process would not be justifiable in a commercial production plant.

The mineral composition of the heavy mineral concentrate removed by gravity separation on spirals included ilmenite, zircon and rutile. The heavy mineral concentrate produced generally had a grade in the range 3% to 5% HM. The grade of the valuable components of the heavy mineral concentrate were up to 0.5% ZrO2 and 2% TiO2.

Chemical analysis of the 355kg bulk sample before processing is shown in Table 6.

Both low iron products produced by BRI are expected to be widely used in the production of photovoltaic rolled glass, ultra-clear glass, high-grade utensils and in the electrical industry.

Table 7 shows the reduction in Fe2O3 from the initial 260ppm (0.026%) to 83ppm through the processing stages of classification, gravity separation, attritioning and magnetic separation.

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Table 6: Bulk sample analysis before processing (BDRI report)

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Table 7: Processing stages and Fe2O3 reduction (BDRI report)

22 Galalar Silica Sand Project Scoping Study September 2019

The physical processing tests show:

Gravity separation has a significant effect on the reduction of Fe2O3 content in the concentrate. After three stages of gravity separation the Fe2O3 content of the concentrate can be reduced to 95ppm.
Following classification and gravity separation, the use of attritioning and high intensity magnetic separation will further reduce the Fe2O3 to 83ppm.

The particle size distribution and chemical assays by size range are shown in Table 8. The coarse size fractions are higher in SiO2 and lower in Fe2O3 than the fine fractions.

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Table 8: Particle size distribution and chemical assays (BDRI Report)

23 Galalar Silica Sand Project Scoping Study September 2019

The low Fe2O3 silica product that was produced by physical separation was then subjected to chemical processing using hot acid leach tests as shown in Table 9. These test showed that the Fe2O3 content could be further reduced to 64ppm by hot leaching with 30% sulphuric acid.

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Table 9: Hot acid leach test results (BDRI report)

The processing testwork completed by BDRI demonstrated that low iron silica products (80-100ppm) could be produced from the Galalar bulk sample which had an initial iron content of 260ppm.

The testwork indicates that the recommended product should have a target range of 80-100ppm for Fe2O3 using physical separation only. The option of additional chemical processing could reduce the iron content to 60-80ppm but this is not likely to be a viable processing stage due to high processing costs including environmental compliance.
The low iron products (<100ppm Fe2O3) that can be produced from Galalar ore are expected to be suitable for use in photovoltaic rolled glass, ultra-clear glass, high quality container glass, and electronic grade silicon micro powder.
By-products from the testwork included fine silica sand from the classification process and heavy mineral concentrate from the gravity separation process and the magnetic separation process. Ilmenite, zircon and rutile could be produced from the heavy mineral concentrates. The fine classified silica sand could be used to produce glass fibre sand.

Production Target

This study used a production target of 11.25m tonnes of low iron silica product for export over a period of 15 years. The annual production rate is 750,000 tonnes which requires an annual mining rate of 950,000 tonnes, allowing for the low iron silica recovery factor of 79% determined by BDRI during its process test work.

BDRI’s test work produced a silica product with 83ppm Fe2O3 from a bulk sample which was extracted direct from the Mineral Resource using an air-core drilling rig.

The recovery reported by BDRI is supported by the 88.3% recovery reported by IHCR from spiral separator testwork which produced a silica product with 200ppm Fe2O3 from gravity separation alone.

The total production target requires 14.2m tonnes to be mined from the 30.2m tonne Mineral Resource estimate. The indicated resource for the Galalar project is 21.5m tonnes and the total production target for the 15-year project evaluation is a conversion factor of 66% from the indicated Mineral Resource to low iron silica production target.

24 Galalar Silica Sand Project Scoping Study September 2019

Proposed Production Schedule

The production target is based entirely on Indicated Mineral Resources and does not use any Inferred Mineral Resources. The production target has been modelled over a 15-year mine life with an annual mining rate of 950,000t and an annual production rate of 750,000t of low iron silica product. The schedule for production and the Mineral Resource category on which the production is based is presented in Table 10 below.

Production Year	Mined Tonnes	Tonnes Produced	JORC Mineral Resource Category
1	950,000	750,000	Indicated
2	950,000	750,000	Indicated
3	950,000	750,000	Indicated
4	950,000	750,000	Indicated
5	950,000	750,000	Indicated
6	950,000	750,000	Indicated
7	950,000	750,000	Indicated
8	950,000	750,000	Indicated
9	950,000	750,000	Indicated
10	950,000	750,000	Indicated
11	950,000	750,000	Indicated
12	950,000	750,000	Indicated
13	950,000	750,000	Indicated
14	950,000	750,000	Indicated
15	950,000	750,000	Indicated
15-Year Total	14,250,000	11,250,000	100% Indicated

Table 10: Production Schedule and JORC Mineral Resource Indicated Category

The production schedule is based entirely on Indicated Resources and the total production target of 11,250,000t of low iron silica will utilise only 66% of the available Indicated Mineral Resource.

Mining Operations

The mining operation and processing plant will operate as a continuous process for 24 hours per day and 360 days per year. The shift roster will be a four-crew system and the crews will rotate on a schedule to be finalised following detailed discussions with the local employees. There will be no site camp and all personnel will reside at Hope Vale or Cooktown during their work roster.

The mining operation will commence with the removal of large vegetation on the mining areas ahead of the planned mining operation using a bulldozer. Where possible vegetation will be pushed or transported off mining areas and stockpiled for future use in rehabilitated areas.

Mulching and burning may be used if these processes can be demonstrated to have benefit for rehabilitation. The remaining smaller vegetation and topsoil will be pushed into stockpiles using a bulldozer and the stockpile transported off the mining areas. Where possible this vegetation and soil mix will be returned directly to rehabilitation areas as these areas become available. The average depth of the sand to be mined is greater than 15m and the average area to be prepared for mining averages less than four hectares per year.

The exposed silica ore will be excavated using a front end loader and loaded directly into a hopper-feeder unit at a rate of 138t per hour for 19.2 hours per day and 360 days per year. The average daily operating hours allows for maintenance and operational downtime, and the days per year includes an allowance of 5 public holidays that would not be worked. The hopper-feeder unit will screen out oversize rubbish and pump the sand to a mobile wet spiral plant in slurry form at a controlled feed rate of 138 tonnes per hour (tph).

The hopper-feeder unit will include:

Coarse screening at 50mm aperture
Hopper and feed conveyor
Water supply pipeline
Wet trommel screening at 1mm aperture
Constant density sump
Slurry pump and pipeline

25 Galalar Silica Sand Project Scoping Study September 2019

Processing Plant

The slurry from the hopper-feeder unit will be pumped into a controlled density tank at the wet processing plant. Processing equipment will include spirals, attritioners, classifiers, and magnetic separators to remove heavy mineral, release surface impurities from the silica, remove fine particles, and remove magnetic particles.

Heavy mineral concentrate will be stockpiled for further concentration and sale when sufficient stocks have accumulated. Fine particles removed during processing will be pumped to a dam for settling to allow reuse of the process water. The low iron silica product will be dewatered and stockpiled ready for transport. The process flow in the wet spiral plant is as follows:

138 tph slurry from the controlled density tank will be pumped to a two stage spiral circuit which will be designed to remove heavy mineral and slimes from the ore.
the spirals will achieve a recovery in the order of 85% and produce silica concentrate with approximately 200ppm Fe2O3 at a rate of 117tph.
The silica concentrate will be attritioned, classified and magnetically separated to remove fine particles of silica, iron, heavy mineral and clay.
The silica product that will be produced after magnetic separation will have a grade of 80-100ppm Fe2O3 and will be produced at a rate of approximately 110tph.
Heavy mineral and fine sand removed by the spirals will be dewatered using a hydrocyclone and stockpiled on the site.
Slimes and fine particles removed during processing will be pumped to a dam for settling, dewatering, and later covering for rehabilitation.
Upgraded white silica sand produced by the spirals will be pumped to a stockpile area where it will be dewatered using a hydrocyclone, stockpiled and allowed to drain to a low moisture content.

The low moisture product will be loaded onto the 50t double road trains for transport to Cooktown. The plant’s gravity separation area will be a standard Mineral Technologies 150 tph processing circuit using MG12 spirals to remove the heavy minerals. The plant’s surplus capacity will allow for variations in the feed rate to maintain an average processing rate of 138 tph.

Independent testwork by IHCR has shown that these spirals are efficient for this gravity separation duty and will reduce the silica’s iron content to 200ppm Fe2O3 with a recovery to silica product of 85%. Figure 11 shows the flowsheet for the plant feed system and the heavy mineral separation circuits in the processing plant.

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Figure 11: Mineral technologies 150tph MG12 spiral flowsheet

26 Galalar Silica Sand Project Scoping Study September 2019

Diatreme engaged IHCR to complete a scoping study engineering report on the process to upgrade the silica sand produced by the spiral separators to a low-iron silica sand product.

IHCR developed a flowsheet (Figure 12) based on the BDRI report which demonstrated that low-iron silica could be produced by attritioning, classifying and magnetically separating the silica sand produced by the spiral separators.

Power Supply

The site’s power supply will be a hybrid diesel-solar system where diesel generators will supply the base load and solar panels will provide a variable supply during the day to reduce the diesel fuel consumption.

The solar panels will also be used as a back-up supply for offices and workshops during generator maintenance. The diesel generators will be sized to suit the full site power demand which is expected to be up to 750 kilowatts (kW).

The power demand for the processing plant has been estimated from reports by Mineral Technologies for the spiral plant and IHCR for the silica upgrade plant.

Table 11 provides the estimated processing power demand to produce low iron silica. Other power demand for the site includes offices and workshops which are expected to have a combined power demand well below 20kW.

Process Component	Power Demand (kW)
Plant feed system	90
Trommel	5
Process waterpumps	24
Spiral feedpumps	96
Silica upgrade circuitpumps	125
Attritioner cells	144
Wet high intensity magnetic separators	126
Rejectspumps	58
Silicaproductpump	59
TOTAL	727

Table 11: Estimated power demand for the processing plant

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Figure 12: IHCR flowsheet for upgrading spiral product to low-iron silica sand

27 Galalar Silica Sand Project Scoping Study September 2019

Water Supply

The estimated water requirement for the mine and site facilities is 500 megalitres per year. This supply is expected to be obtained from groundwater bores close to the mine site. Exploration drilling has intersected the main water table in sand below the mineral resource. There has been no hydrogeological investigation of the water table to determine the potential yield from bores, but the geology and rainfall is similar to Cape Flattery where that silica mine obtains a suitable water supply for an operation in excess of 2 million tonnes per year.

Water recycling dams will be used to minimise the requirement from water bores. Most of the water losses on the site will result from seepage into the ground from dams, product stockpiles, and by-product stockpiles.

The only water lost from the site will be small quantities lost as evaporation and moisture transported from the site in the product. Water bores and spears close to the operations will effectively be able to recycle a large proportion of the water that seeps into the ground.

Diatreme has discussed the project and its water requirements with the allocated Manager for Water Planning at the Cairns office of the DNRME. The relevant water management area is the Endeavour River catchment which is included in the Cape York Water Planning process. The Water Management Protocol for the Cape York Water Plan will be released shortly and will be operational by October 2019.

The Endeavour River catchment has surplus water allocation that is not currently being utilised. The project is expected to be able to obtain the necessary water from various sources including purchasing existing allocations or negotiating with freehold landholders who are expected to receive allocations in the coming months.

Rehabilitation

Rehabilitation will be undertaken progressively as areas which have been disturbed for mining or services are no longer required.

Rehabilitation will commence in the third year of operations and will continue for the life of the operation. At the completion of operations and decommissioning of the mining and processing equipment all remaining areas in a disturbed condition will be rehabilitated.

The rehabilitation process will include:

Shaping the surface of the disturbed areas with earthmoving equipment to remove any abrupt features and create a land surface suitable for spreading soil and seed, and removing features that may be prone to wind erosion.
Covering the shaped surface with subsoil that was removed when the area was originally cleared for mining activities.
Covering the subsoil with topsoil and remnants of vegetation that were removed from the surface when the area was cleared.
Spreading seed on the topsoil and providing wind protection where necessary to minimise wind damage to the surface of the soil and seedlings.
Where necessary planting seedlings of specific species that do not germinate as desired. A plant nursery will be used to produce seedlings of specific species from seed collected before vegetation clearing commences.

The final elevation of the rehabilitated surface will be lower than the original surface in areas that have been mined. The reduction in elevation will be similar to the depth of sand removed for processing.

Product Logistics

The low iron silica product will initially be exported to customers in China. There are no available port facilities with surplus ship loading capability close to Galalar and the current most economic method for loading the product onto a ship is transhipping at Cooktown.

Current State Government policy does not permit bulk transhipment in the GBRMP but it does allow transhipment of containerised or packaged products.

28 Galalar Silica Sand Project Scoping Study September 2019

Diatreme is currently engaged in a process with stakeholders and Government agencies to seek approval for bulk transhipping through the Cooktown Port and is being supported by Hope Vale Congress and both Cook Shire and Hope Vale Shire Councils. The current logistics strategy for the project is to export the product as a bulk commodity from the mine site to the Cooktown barge loading facility (BLF) by truck, and from the BLF to a ship by barge.

The BLF is tentatively planned to be located beside the Marton boat ramp on the Endeavour River. Diatreme has discussed this proposal with officers of the Cook Shire Council and discussions are continuing around the possibility of Diatreme leasing approximately one hectare of land on the northern side of the boat ramp from the council for the BLF.

The Cook Shire Council has a standard load limit of 42.5t gross for trucks. Double road trains with 50t loads can be used if two kilometres of council road is upgraded to the relevant standard. Double road trains can be used on Hope Vale Shire Council bypass road and the roads connecting to Galalar and Cooktown. The trucks will operate 12 hours per day and mainly during daylight to minimise noise and light impacts.

The silica product will be loaded onto double road trains at the mine site for transport by road to the BLF at Cooktown. The project will include construction of a BLF near the Marton boat ramp at Cooktown. The BLF will include barge mooring piles in the river, equipment for loading bulk silica product onto the barge, and a concrete floor large enough to store 25,000 tonnes of product.

Each road train will carry 50 tonnes of product. The trucks will transport the product approximately 63km to the Cooktown BLF travelling via the Hope Vale heavy vehicle by-pass, then along the Endeavour Valley Road, Starke Street and Slaughter Yard Road to the BLF. 2,100 tonnes (42 double road trains) of bulk product will be transported from the mine to Cooktown daily for 360 days of the year. The round-trip time for a truck will be approximately 2.5 hours, allowing each truck to complete five loads per day.

Nine side-tipping double road trains will be required for the road transport logistics. The trucks will deliver the product to a concrete floor at the BLF and a front-end loader stack the product in the storage compound. The storage pad will have a capacity of 25,000t which will allow shipments up to 35,000t due to the duration of the transhipping which allows delivery of an additional 10,000t to the BLF. The minimum shipment size is expected to be 15,000t.

The Endeavour River is suitable for 70m barges with maximum loads up to 2,000t at peak tides. The barging operation will be scheduled for loaded barges to travel at high tide. Risks that need to be managed include shallow sand banks and general boat traffic.

Details of the proposed barging and transhipping system are:

two barge loads to the ship every day
barges will travel 10km to a moored ship just outside the Cooktown Port limits
one way travel time for the barge is 1 hour
the ship will use on board cranes to unload the barge
barge loading time is 10 hours and transhipping time is 10 hours
approximately 3,700t will be transhipped per day
the marine vessel requirement is two 70m barges, two shallow draft tugs, two assist tugs and a crew transfer vessel.

A transhipping roadstead will be required outside the Cooktown Port limits because the port area is too shallow to fully load a handysize ship.

Approval from the Harbourmaster will be required for a roadstead and discussions with officers of the Department of Main Roads and Transport indicate the proposed operation would comply with the Sustainable Ports Act 2015 and would require an exemption from the State Government’s Transhipping Policy to allow transhipping of a bulk commodity.

29 Galalar Silica Sand Project Scoping Study September 2019

Shipping

The proposed maximum shipment size is 35,000t, of which 25,000t will have been stockpiled at the BLF when ship loading commences and the other 10,000t will be delivered to the BLF during the 10 day ship loading period. The production target of 750,000t of final product per year will require a 35,000t shipment every 16.8 days, which is 21.4 shipments per year.

A shipping agent will be engaged for the project and will manage the ship scheduling and cargo documentation.

Personnel

The project will not require a site camp and employees and contractors will be accommodated in the Cooktown and Hope Vale areas where there are adequate facilities for the workforce. A bus will be used during construction to reduce the number of vehicles travelling on the road from Hope Vale to the construction site. Private and company vehicles will be used for transport during operations.

The average workforce requirement for the 6 to 8 month project construction period is expected to be in the order of 30 to 40 persons. There will be three separate construction sites:

Mine site
Barge loading site
Road upgrade site.

The construction workforce for the product logistics system will be estimated when full details of the system are finalised.

The mine site workforce requirement for the initial operating phase will include:

Mine manager
Office administrator
Logistics administrator
Production superintendent
2 x Laboratory technicians
4 x Shift supervisors
4 x Machine operators
12 x Process operators.

The land transport component will require nine truck drivers and two loader operators, and the BLFtranshipping component will require approximately 25 personnel.

The initial full-time workforce for the mine site will be approximately 26 which excludes short term contractors and others not based at the mine site. Electrical and mechanical contractors will provide maintenance services as required.

The market for low iron silica is expected to continue growing and additional employees will be required to increase the production rate in line with market demand.

Market and Pricing

Low iron silica sand is the raw material used for manufacturing low iron, high clarity glass products with iron oxide content less than 100 ppm.

The solar panel manufacturing industry is now a major market for low iron silica sand. Other uses for high clarity glass include optical glass, aquariums, display cases, automotive glass, some windows, and other applications where high clarity is desired. There are currently no direct substitutes for glass manufactured from low iron silica in the majority of applications.

The quality of low iron silica sand from Galalar is compared in the table below with the average specification by Chinese manufacturers of photo-voltaic glass for use in solar panels.

30 Galalar Silica Sand Project Scoping Study September 2019

PARAMETER	CHINA SPECIFICATION	GALALAR QUALITY
Particle size distribution	109-700 microns (24-140mesh)	109-700 microns 98%in range
SiO2	99.5%	99.7%
Fe2O3	100ppm	85ppm
TiO2	400ppm	140ppm
Al2O3	1000ppm	500ppm

Table 12: Photovoltaic glass specification and Galalar comparison

Diatreme has signed a Memorandum of Understanding with Anhui Fengsha Mining Group and has been approached by Wan Zhong Investment Co Ltd regarding the supply of low iron silica into China.

The consensus understanding of pricing for low iron silica for export to China is generally in the range of US$70 to US$80 per tonne (average US$75) FOB at a port in northern and western Australia.

Revenue

The Galalar product quality presented in this comparison is taken from the BDRI report on a bulk sample processed in China using the processing flowsheet that is planned for Galalar.

Galalar product quality for this bulk sample exceeds the Chinese specification for low-iron photovoltaic sand and provides confidence that the Galalar mineral resource will provide the production target used in this scoping study. The production target is 15 years of mining at a rate of 950,000t per year for a total of 14.25mt of sand mined, which is 66% of the Indicated Mineral Resource (21.5mt).

China is a large market for low iron silica sand and consumed approximately 6-9mt for solar panel production in 2018. Low iron silica is now in short supply and the demand is expanding rapidly. IMARC forecasts the global silica sand market to expand at a compound annual growth rate of 7.2% through to 2022, with revenues reaching close to $10 billion (Figure13).

Diatreme has engaged with several Chinese companies involved in supplying low iron silica to glass manufacturers and also directly with glass manufacturers.

The average estimated average price for low iron silica sand suitable for solar panel production is US$75 per tonne FOB Cooktown. The range of possible prices is from US$63 to US$86 per tonne and these prices have been used in the sensitivity analysis.

A long-term exchange rate of 0.70 (USD:AUD) has been used in financial modelling. The annual production of 750,000t per year would have a value of US$56.25 million (A$80.36 million).

The revenue used in financial modelling for this study is based on estimates using information available from processors and potential customers in China. Diatreme does not have any sales agreements in place due to the early stage of development of this project.

Dollar values used in this report are Australian dollars (AUD) unless specifically identified as US dollars (USD).

Cost Estimation

Capital and operating costs for the scoping study have been estimated based on currently available information and are presented in Table 13. A description of each cost component is provided following the cost estimate table.

31 Galalar Silica Sand Project Scoping Study September 2019

==> picture [479 x 324] intentionally omitted <==

Figure 13: Global growth in the silica sand market

32 Galalar Silica Sand Project Scoping Study September 2019

GALALAR PROJECT 750,000 TPA COST ESTIMATION	GALALAR PROJECT 750,000 TPA COST ESTIMATION


		$ (AUD)	$ (AUD)/year
ITEM	DETAILS	CAPITAL	OPERATING
Prepare mine, plant & barge sites	Mine site civil works	250,000	0
	Upgrade road to Cooktown	1,750,000	750,000
	Cooktown barge loadingfacility	5,000,000	250,000
	Endeavour river channel	100,000	0
Clear, prepare mining area	200kW earthmoving equipment 4hr/day	contractor	288,000
Corporate overheads	Management marketing planning accounting	N/A	500000
	, , ,		,
Drilling and assaying	2000m/year, $50/m	N/A	100,000
Laboratory	Drill and product assays, grade control & quality control	500,000	300,000
Employees	26 FTE x 120,000	NA	3,120,000
Mining	200kW endloader 20hr/day 950,000t@$1.20/t	contractor	1,140,000
Generators & power supply system	750kW diesel generator 24hr/day 100kW solar PV system	750,000	1,500,000
			+ maintenance
Water supply	Bores fitted with submersible pumps and diesel generator	500,000	150,000
			+ maintenance
In-pit plant feed system	Grizzly, hopper, belt feeder, trommel, slurry transport system	500,000	+ maintenance
Processing plant, offices, workshops, amenities	150tph wet spiral plant with attritioning, classifying & magnetic separation	10,000,000	+ maintenance
Plant civil services	Bulldozer + endloader, pipes, tailings, services (4hr/day)	Contractor	600,000

Freight	Construction & operating	200,000	75,000
Maintenance	Parts & contractors 10% of fixed plant capital	Contractor	1,175,000
Rehabilitation	Bulldozer + endloader	Contractor	500,000
	5hr/day
Truck loading	200kW endloader, $1/t	Contractor	750,000
Trucking	$14/t	Contractor	10,500,000
Barging& transhipping	BLF + transhippingbarge $20/t	Contractor	15,000,000
Shiploading	Ships cranes $2/t	Contractor	1,500,000
Contingency	25% on capital,10% on operating	4,887,500	3,819,800
TOTAL		$24,437,500	$42,017,800

Table 13: Estimated capital and operating costs

33 Galalar Silica Sand Project Scoping Study September 2019

A description of cost estimates follows:

Mine site civil works is a lump sum allowance of $250,000 for earthworks and excavations required to prepare the mine site area for construction work.
Upgrade road to Cooktown is an estimate based on discussions with a local road contractor and an inspection of the current state of the road. The estimated cost for upgrading the road for double road trains is $1.25m for 35km in the Hope Vale Shire, $200,000 for minor work on 26km of State road, and $300,000 for 2km of road upgrade in the Cook Shire. The total estimated cost for road upgrades is $1.75m. More details of this estimate are included in Table 14. $750,000 per year has been included as a cash cost for road maintenance which is likely to be required under Road Use Agreements with the Shires and the State and is estimated as one dollar per tonne transported by truck.
Cooktown BLF and Endeavour River channel estimates are allowances based on available information from other similar facilities.
Clearing the mining area includes clearing vegetation and removing surface soil to expose the white sand. The average clearing rate is estimated to be 4 hectares per year and an allowance of 4 x 200kW machine hours per day has been included for this activity. Using $200 per hour per machine the annual cost estimate is $288,000.
An allowance of $500,000 per year has been assumed for Diatreme’s corporate overheads relating to the project.
Drilling and assaying for production planning and grade control are estimated to be 2,000m per year at a cost of $50 per metre for a total annual cost of $100,000.
Laboratory costs include capital costs for a laboratory with capability for heavy liquid separation, attritioning, classification, magnetic separation and assaying equipment for low iron silica samples. A capital allowance of $500,000 is included for the laboratory and $300,000 per year is included as laboratory operating costs including independent laboratory assays.
The number of full-time employees is estimated to be 26. Assuming an average annual cost of $120,000 (including on-costs) across all categories, the annual cost for full-time employees is $3.12 million.
A contractor will be engaged to mine the sand using a front-end loader at 138 tonnes per hour, 19.2 hours per day, and 360 days per year. Mining will require a 200kW end-loader and the estimated cost is $1.20 per tonne or $166 per hour.
Power supply capital includes $600,000 for a 1,000kW diesel generator and $150,000 for a 100kW solar PV system. The estimated annual operating cost is $1,500,000 assuming an average load of kw on the diesel generator. An additional cost is included for maintenance of the generator and solar system.
The water supply for the operation is estimated to be 500 megalitres per year or 20 litres per second. Assuming four groundwater bores with connecting pipeline are required, the estimated capital cost is $500,000 with an annual operating cost of $150,000. An additional cost is included for maintenance.
The in-pit plant feed system will include a grizzly, hopper, belt feeder, trommel and slurry transport system. The estimated capital cost is $500,000. The plant feed system will be electrically powered and an additional operating cost is included for maintenance.
The wet processing plant will include spirals, attritioners, classifiers and magnetic separators. The estimated capital cost is $10m and the plant will be electrically powered. An additional operating cost is included for maintenance. Details of this estimate are provided in Table 15.
A contractor’s bulldozer and end-loader will be required for approximately four hours per day for mine and plant civil services. The estimated annual cost for this activity is $600,000 per year.
Freight cost for delivery of goods and materials to site are estimated to be $200,000 for construction and $75,000 per year during operations.

34 Galalar Silica Sand Project Scoping Study September 2019

Maintenance for power supply, water supply, plant feed system and wet processing plant has been estimated as 10% of the capital value and totals $1.175m per year. Freight cost for delivery of goods and materials to site are estimated to be $200,000 for construction and $75,000 per year during operations.
Maintenance for power supply, water supply, plant feed system and wet processing plant has been estimated as 10% of the capital value and totals $1.175m per year.
Rehabilitation includes allowance for a contractor’s bulldozer and end-loader for 5 hours per day at an estimated cost of $400,000 per year to shape the surface and replace soil and vegetation. $100,000 per year has been included for purchasing seed and seedlings.
The bulk product will be loaded onto trucks by an end-loader. The estimated cost for truck loading is $1 per tonne or $750,000 per year.
The truck transport cost from the Galalar site to the Cooktown BLF is estimated to be $14 per tonne. This is a rate of 22 cents per tonne per kilometre for the 63 kilometre trip and is based on current contractor rates in the Cooktown and Hope Vale areas. The annual trucking cost will be approximately $10,500,000.
Barge loading and barge transport are estimated to cost $20 per tonne with an annual cost of $15,000,000.
Ship loading is estimated to cost $2 per tonne ($1.5m/year). This cost includes ship cranes, and costs associated with the roadstead close to the Cooktown Port limit.
The cost for shipping from Cooktown to China is estimated to be US$15 per tonne based on current shipping prices for sand from southern WA to China. This study uses the FOB silica price and the shipping cost will be paid by the customer.

Details of the cost estimate to upgrade the road from Galalar to Cooktown are provided in Table 14.

Item	Cost ($AUD)
Hope Vale Shire Roads
Site access road: 0.8km new road	150,000
Creek crossing	100,000
Site access to Elim Road: 7.67km gravel road upgrade	200,000
Elim Road gravel section: 6.38km upgrade	200,000
2 crossings	150,000
Elim Road sealed section: 8.47km bitumen edge works	50,000
Airstrip north gravel: 1.63km gravel upgrade	100,000
Banana Farm red road: 2.19km gravel upgrade	250,000
McIvor River sealed road: 7.55km bitumen edge works	50,000
Queensland State Road
Endeavour Valley Road: 26.16km sealed road repairs	200,000
Cook Shire Roads
Starke Street and Slaughter Yard Road: 1.75km	300,000
Total road upgrade capital cost estimate(62.6km, sealed 43.93km, gravel 18.67km)	$1,750,000

Table 14: Capital cost estimate for Galalar-Cooktown road upgrade

A summary of the capital cost estimate for the processing plant is provided in Table 15. The cost details have been extracted from reports by Mineral Technologies and IHCR to produce a total processing plant capital cost estimate showing major component costs.

Cost estimates have been rounded up to reduce the risk of underestimating the capital cost and for consideration of the preliminary nature of the process design. A capital cost allowance of $10m for the processing plant was used in the financial evaluation.

35 Galalar Silica Sand Project Scoping Study September 2019

Processing Plant Component	Estimated Capital Cost ($AUD)
Trommel	100,000
Spiral separators	400,000
Attritioner cells	350,000
Up current classifiers	500,000
Wet high intensity magnetic separators	1,800,000
Process slurry pumps	350,000
Process water pumps	120,000
Dewatering hydrocyclones	230,000
Distributors & launders	150,000
Piping & valves	350,000
Instrumentation, meters, switchrooms	500,000
Foundations, structures, platework (materials)	1,500,000
Construction (mechanical & electrical)	1,800,000
Offices, workshops, amenities	300,000
Engineering, procurement, construction management	1,500,000
TOTAL	$9,950,000

Table 15: Processing plant capital cost estimate

Queensland State Royalty at a rate of $0.90 per tonne of product has been included as a cash cost in the financial model. For the production rate of 750,000 tonnes per year the annual State Royalty payable is $675,000.

Due to the early stage of the project, a Mining Agreement has not been finalised with the traditional owners and freehold landowners. A nominal royalty of 1% of revenue has been included as a cash cost for the project and Diatreme believes this appropriate given the relevant discussions and negotiations to date.

Forecast Financial Information

A financial model has been developed by Diatreme for an initial assessment of the viability of the project. Parameters used in the model are:

Exchange rate USD:AUD = 0.70
• Discount rate 10% • Period of evaluation 15 years • Annual production target 750,000t • Product price US$75 p/t (AU$107) • Capital cost $24.4m • Annual operating cost $42m • State royalty 90c p/t • Hope Vale royalty 1% of revenue

The pre-tax results of the preliminary financial evaluation are approximately:

Net Present Value $231 million (AUD)
• Internal Rate of Return 150% • Payback period 0.7 years

Additional estimated financial information obtained from the financial evaluation is presented in Table 16 (Cost and revenue estimates) and Table 17 (Unit cost per tonne estimates).

Financial Estimate	($AUD)
Revenue/year (AUD '000)	80,357
Cash costs/year (AUD '000)	43,496
Cash margin/year (AUD '000)	36,861
Cash cost/t product (AUD)	58.00

Table 16: Cost and revenue estimates

36 Galalar Silica Sand Project Scoping Study September 2019

Cost Area	Unit Cost ($AUD/t)
Mine site operations	$2.70
Processing	$9.23
Truck transport	$16.00
BLF & Transhipping	$22.33
Overheads, royalties, contingency	$7.73

Table 17: Estimated unit cost per tonne of final product

Sensitivity analysis has been performed on pre-tax NPV. Model inputs were flexed between a range of +/-15% stated here and Fig 14 states +/- 10% increments (Table 18).

Model inputs	-15%	-10%	-5%	Base	Base	+5%	+10%	+15%
Silica price Production tonnes	148	176	203	231		258	286	313
	149	176	204	231		258	286	313

Model inputs	+15%	+10%	+5%	Base	-5%		-10%	-15%
Exchange rate Operating cashcosts	159	181	205	231	260		292	328
	186	201	216	231	246		261	276

Table 18: Pre-tax NPV sensitivity against base case

Model inputs	7%	Base (10%)	13%
Discount rate	289	231	188

Table 19: Pre-tax NPV sensitivity against base case discount rate

37 Galalar Silica Sand Project Scoping Study September 2019

The tornado chart highlights the sensitivity of pre-tax NPV at -10% and +10% of financial model inputs against the A$231m base case scenario.

==> picture [352 x 173] intentionally omitted <==

Figure 14: Pre-tax NPV sensitivity

==> picture [350 x 161] intentionally omitted <==

Figure 15: Life of mine undiscounted cash flow

Future Technical Studies

Future technical studies will be completed as part of a feasibility study program to support an investment decision by Diatreme’s Board of Directors.

The additional studies will include:

Measured and Indicated Resources based on additional drilling.
Capital and operating cost estimates to +/-15% accuracy.
Finalised logistics system
Proved and Probable Ore Reserves
Mine plan and mining schedule
Project implementation plan
Feasibility Study.

38 Galalar Silica Sand Project Scoping Study September 2019

Development Timeframe

Project Funding

The positive forecast financial information presented in this Scoping Study and the forecast strength of the market for low iron silica sand has given Diatreme confidence to expedite the development of this project.

Diatreme expects a further period of 15-18 months to the establishment of possible mining operations as the Company is now undertaking the required detailed permitting and approvals process leading to the grant of a mining lease and establishment of actual on-site operations.

As the expected total CAPEX of the project is relatively low in mining development terms the Company would expect to fund the project’s development through a combination of direct fund raising through share issuances in Diatreme, supported by existing and potentially new shareholders and through the sourcing of an appropriate level of project debt from external lenders. The Company could also seek to bring in development partners to fund the project’s implementation by selling down a portion of the project.

Concurrently the Company is also undertaking the requisite detailed commercial studies and complete feasibility study to establish the project’s viability.

Project Delivery Schedule

The target project delivery schedule is shown in Table 20 below:

==> picture [538 x 218] intentionally omitted <==

Table 20: Target project delivery schedule

JORC Code, 2012 Edition – Table 1 Report – Galalar Silica Project Indicated and Updated Inferred Resource Estimate.

Section 1 Sampling Techniques and Data

(Criteria in this section apply to all succeeding sections.)

Criteria	JORC Code explanation	Commentary
Sampling	• Nature and quality of sampling (eg cut channels, random chips, or	•Drilling samples range from 1m-3m down hole intervals of air-core
techniques	specific specialised industry standard measurement tools appropriate	drill cuttings collected from cyclone mounted rotary splitter,
	to the minerals under investigation, such as down hole gamma	approximately 3-4kg (representing approximately 20% of drill material
	sondes, or handheld XRF instruments, etc). These examples should	returned via the cyclone is sampled).
	not be taken as limiting the broad meaning of sampling.	•Sample was submitted to commercial laboratory for drying, splitting (if
	• Include reference to measures taken to ensure sample representivity	required), pulverization in tungsten carbide bowl, and XRF analysis.
	and the appropriate calibration of any measurement tools or systems	•Sampling techniques are mineral sands “industry standard” for dry
	used.	beach sands with low levels of induration and slime.
	• Aspects of the determination of mineralisation that are Material to the	•As the targeted mineralization is silica sand, geological logging of the
	Public Report.	drill material is a primary method for identifying mineralization
	• In cases where ‘industry standard’ work has been done this would be	•Metallurgical samples are composited intervals of white and cream
	relatively simple (eg ‘reverse circulation drilling was used to obtain 1	sands logged in drilling with collection of the entire volume of air-core
	m samples from which 3 kg was pulverised to produce a 30 g charge	drill cuttings from the cyclone in to large plastic samples bags.
	for fire assay’). In other cases more explanation may be required,
	such as where there is coarse gold that has inherent sampling
	problems. Unusual commodities or mineralisation types (eg
	submarine nodules) may warrant disclosure of detailed information.
Drilling	• Drill type (eg core, reverse circulation, open-hole hammer, rotary air	•Vertical NQ air-core drilling utlising blade bit, initially 3m runs were
techniques	blast, auger, Bangka, sonic, etc) and details (eg core diameter, triple	used for drilling campaigns in (September 2017, October 2017, April
	or standard tube, depth of diamond tails, face-sampling bit or other	2018 and June 2018) which was decreased to 1m increments the
	type, whether core is oriented and if so, by what method, etc).	most recent drilling campaign (November/December 2018). Within
		the resource estimate there is 75 drillholes of which (1m increment 30
		holes, 3m increment 45 holes).
		•Holes were terminated in a clay layer or when the water table was
		intersected.
Drill sample	• Method of recording and assessing core and chip sample recoveries	•Visual assessment and logging of sample recovery and sample
recovery	and results assessed.	quality.
	• Measures taken to maximise sample recovery and ensure	•Reaming of hole and clearance of drill string after every 3m rod.
	representative nature of the samples.	•Sample chute cleaned between samples and regular cleaning of
	• Whether a relationship exists between sample recovery andgrade	cyclone toprevent sample contamination.

Criteria	JORC Code explanation	Commentary
	and whether sample bias may have occurred due to preferential	•No sample bias occurred between sample recovery and grade.
	loss/gainof fine/coarse material.
Logging	• Whether core and chip samples have been geologically and	•Geological logging of the total hole by field geologist, with retention of
	geotechnically logged to a level of detail to support appropriate	sample in chip trays to allow subsequent re-interpretation of data if
	Mineral Resource estimation, mining studies and metallurgical	required.
	studies.	•The total hole is logged initially at 3m intervals which was decreased
	• Whether logging is qualitative or quantitative in nature. Core (or	to 1m; logging includes qualitative descriptions of colour, grain size,
	costean, channel, etc) photography.	sorting, induration and estimates of HM, slimes and oversize utlising
	• The total length and percentage of the relevant intersections logged.	panning.
		•Logging has been captured through field drill log sheets and
		transferred through to an excel spreadsheet with daily update of field
		database and regular update of master database.
Sub-sampling	• If core, whether cut or sawn and whether quarter, half or all core	•Drilling samples rotary split on site (Approximately 20% subsample),
techniques	taken.	resulting in approximately 3 – 4kg of dry sample.
and sample	• If non-core, whether riffled, tube sampled, rotary split, etc and	•Sample was coned and quartered to generate a 1-2kg sample for
preparation	whether sampled wet or dry.	submission to the laboratory, with surplus retained as a reference
	• For all sample types, the nature, quality and appropriateness of the	sample.
	sample preparation technique.	•Sample size (3kg - 4kg) is considered appropriate for the grain size of
	• Quality control procedures adopted for all sub-sampling stages to	material, average grain size (87% material by weight between
	maximise representivity of samples.	0.125mm and 0.5mm).
	• Measures taken to ensure that the sampling is representative of the
	in-situ material collected, including for instance results for field
	duplicate/second-half sampling.
	• Whether sample sizes are appropriate to the grain size of the material
	_being sampled. _
Quality of	• The nature, quality and appropriateness of the assaying and	•Drilling samples were submitted to ALS Townsville, where they were
assay data	laboratory procedures used and whether the technique is considered	dried, weighed and split.
and	partial or total.	•Analysis was undertaken by ALS Brisbane utilising a Tungsten
laboratory	• For geophysical tools, spectrometers, handheld XRF instruments, etc,	Carbide pulverization, ME-XRF26 (whole rock by Fusion/XRF) and
tests	the parameters used in determining the analysis including instrument	ME-GRA05 (H2O/LOI by TGA furnace).
	make and model, reading times, calibrations factors applied and their	•Samples were assayed for SiO2and a range of heavy and other
	derivation, etc.	elements.
	• Nature of quality control procedures adopted (eg standards, blanks,	•Analysis undertaken determined by a sample code which correlates
	duplicates, external laboratory checks) and whether acceptable levels	to drill logs to ensure no sample bias.
	of accuracy (ie lack of bias) and precision have been established.	•Metallurgical samples were submitted to IHC Robbins for
		characterization testwork (screening, de-sliming, sizing, HLS and
		XRF analysis) and wet-tabling (two stage).

Criteria	JORC Code explanation	Commentary
Verification of	• The verification of significant intersections by either independent or	•Significant intersections validated against geological logging and local
sampling and	alternative company personnel.	geology/ geological model.
assaying	• The use of twinned holes.	•12 holes were twinned with sampling and logging undertaken in 1m
	• Documentation of primary data, data entry procedures, data	increments which were used to validate the 3m sample and drill
	verification, data storage (physical and electronic) protocols.	increments that have been previously completed.
	• Discuss any adjustment to assay data.	•All data captured and stored in both hard copy and electronic format.
		•No assay data had to be adjusted.
Location of	• Accuracy and quality of surveys used to locate drill holes (collar and	•All holes initially located using handheld GPS with an accuracy of 5m
data points	down-hole surveys), trenches, mine workings and other locations	for X, Y.
	used in Mineral Resource estimation.	•UTM coordinates, Zone 55L, GDA94 datum.
	• Specification of the grid system used.	•Contract registered surveyor from Veris Ltd used a differential GPS to
	• Quality and adequacy of topographic control.	pick up drillhole Easting, Northing and Elevation values for holes
		within the resource area.
		•Topographic surface generated from processing Stereo WorldView -3
		satellite imagery and DGPS control points, collar RL’s leveled against
		this surface to ensure consistency in the database.
Data spacing	• Data spacing for reporting of Exploration Results.	•Drill lines were completed at approximately 100m spacing along the
and	• Whether the data spacing and distribution is sufficient to establish the	prepared access tracks, with holes drilled at approximately 75m along
distribution	degree of geological and grade continuity appropriate for the Mineral	the lines.
	Resource and Ore Reserve estimation procedure(s) and	•Drill spacing, and distribution is sufficient to allow valid interpretation
	classifications applied.	of geological and grade continuity for an Inferred Mineral Resource
	• Whether sample compositing has been applied.	and an Indicated Mineral Resource where specified.
Orientation of	• Whether the orientation of sampling achieves unbiased sampling of	•The dune field has ridges dominantly trending 320º - 330°.
data in	possible structures and the extent to which this is known, considering	•The drill access tracks typically run along or sub-parallel to dune
relation to	the deposit type.	ridges which suggest unbiased sampling, some cross-dune tracks
geological	• If the relationship between the drilling orientation and the orientation	linking the ridges were also drilled.
structure	of key mineralised structures is considered to have introduced a	•Silica deposition occurs as windblown with angle of rest
	sampling bias, this should be assessed and reported if material.	approximately 35º (Nob Point East). Drilling orientation is appropriate
		for the nature of deposition.
Sample	• The measures taken to ensure sample security.	•Sample collection and transport from the field was undertaken by
security		company personnel following company procedures.
		•Samples were put into plastic bags, which were labelled and put into
		canvas sample bags and sealed prior to being sent off to ALS
		Townsville.
		•Samples were delivered direct to ALS in Townsville.
Audits or	• _The results of any audits or reviews of sampling techniques and data. _	•The updated Inferred Resource Estimate is based on updated

Criteria	JORC Code explanation	Commentary
reviews		geological and geochemical data which were used to validate and
		audit the original Inferred Resource Estimate.
		•Reviews were conducted internally by Diatreme Ltd and third-party
		consultants Ausrocks Pty Ltd. And they were found to be consistent.

Section 2 Reporting of Exploration Results

(Criteria listed in the preceding section also apply to this section.)

Criteria	JORC Code explanation	Commentary
Mineral	• Type, reference name/number, location and ownership including	•The Galalar Silica Project occurs within EPM17795 in Queensland
tenement and	agreements or material issues with third parties such as joint	and is held by Diatreme Resources Ltd. It should be noted that
land tenure	ventures, partnerships, overriding royalties, native title interests,	previously this project has been referred to as Cape Bedford Silica
status	historical sites, wilderness or national park and environmental	Project. The name of the project was changed to reflect the land
	settings.	owner agreement with the Hopevale Congress Aboriginal Corporation
	• The security of the tenure held at the time of reporting along with any	in 2018.
	known impediments to obtaining a licence to operate in the area.	•The tenement is in good standing.
		•A compensation and conduct agreement along with a cultural
		heritage agreement is in place with the landholder and native title
		party (Hopevale Congress).
Exploration	• Acknowledgment and appraisal of exploration by other parties.	•Previous exploration has been carried out in the area during the
done by other		1970’s by Ocean Mining and 1980’s by Breen Organisation.
parties		•The historical exploration data is of limited use since it comprises
		shallow hand auger drilling and is typically not accurately located.
Geology	• Deposit type, geological setting and style of mineralisation.	•The geology comprises variably re-worked aeolian sand dune
		deposits associated with Quaternary age sand-dune complex.
		•Mineralisation occurs within aeolian dune sands.
Drill hole	• A summary of all information material to the understanding of the	•A tabulation of the material drill holes is attached to this JORC Table
Information	exploration results including a tabulation of the following information	1, as required by the Table 3.1.
	for all Material drill holes:
	`o` easting and northing of the drill hole collar
	`o` elevation or RL (Reduced Level – elevation above sea level in
	metres) of the drill hole collar
	`o` dip and azimuth of the hole
	`o` down hole length and interception depth
	`o` hole length.
	• Ifthe exclusion of this information is justified on the basis that the

Criteria	JORC Code explanation	Commentary
	information is not Material and this exclusion does not detract from
	the understanding of the report, the Competent Person should clearly
	_explain why this is the case. _
Data	• In reporting Exploration Results, weighting averaging techniques,	•Downhole compositing of samples using weighed averages of Silica
aggregation	maximum and/or minimum grade truncations (eg cutting of high	content and interval length to determine floor and ceiling of material
methods	grades) and cut-off grades are usually Material and should be stated.	that exceeded 99% SiO2content.
	• Where aggregate intercepts incorporate short lengths of high grade	•No minimum or maximum grade truncations have been used.
	results and longer lengths of low grade results, the procedure used	•The grade is highly consistent, and the aggregate intercepts use a
	for such aggregation should be stated and some typical examples of	simple arithmetic average.
	such aggregations should be shown in detail.
	• The assumptions used for any reporting of metal equivalent values
	_should be clearly stated. _
Relationship	• These relationships are particularly important in the reporting of	•As the mineralisation is associated with aeolian dune sands the
between	Exploration Results.	majority sub-horizontal, some variability will be apparent on dune
mineralisation	• If the geometry of the mineralisation with respect to the drill hole	edges and faces.
widths and	angle is known, its nature should be reported.
intercept lengths	• If it is not known and only the down hole lengths are reported, there should be a clear statement to this effect (eg ‘down hole length, true
	_width not known’). _
Diagrams	• Appropriate maps and sections (with scales) and tabulations of	•A map of the drill collar locations is incorporated with the main body
	intercepts should be included for any significant discovery being	of the report. Representative cross-sections have been attached
	reported These should include, but not be limited to a plan view of	within the main body of this report.
	_drill hole collar locations and appropriate sectional views. _
Balanced	• Where comprehensive reporting of all Exploration Results is not	•All relevant exploration assay results have been reported.
reporting	practicable, representative reporting of both low and high grades
	and/or widths should be practiced to avoid misleading reporting of
	_Exploration Results. _
Other	• Other exploration data, if meaningful and material, should be reported	•Geological observations are consistent with aeolian dune
substantive	including (but not limited to): geological observations; geophysical	mineralisation.
exploration	survey results; geochemical survey results; bulk samples – size and	•Groundwater was intersected during drilling at the base of holes, as
data	method of treatment; metallurgical test results; bulk density,	expected given the dune complex is an aquifer and drilling was
	groundwater, geotechnical and rock characteristics; potential	undertaken to considerable depth.
	deleterious or contaminating substances.	•The mineralisation is unconsolidated sand.
		•IHC Robins completed a bulk (1.8t) laboratory sample to determine
		viability of product through a one stage of Mineral Technologies
		MG12 spiral, which yielded 99.9% SiO2at 88% recovery.
		•(CNBM) Bengbu Design & Research Institute for Glass Industry Co.,
		Ltd December 2018 completed bulk (0.35t) laboratory sample to
		determine the viabilityof theproduct as high valueglassproduct

Criteria	JORC Code explanation	Commentary
		which resulted in 78% recovery of a >99% SiO2raw sample to 99.9% SiO2.
		•There are no known deleterious substances.
		•1100 %SiO2assays were completed on downhole composites over
		various drilling programs.
Further work	• The nature and scale of planned further work (eg tests for lateral	•The areas of possible extensions are to the north and east of the
	extensions or depth extensions or large-scale step-out drilling).	existing resource boundary which is constrained based on drilling
	• Diagrams clearly highlighting the areas of possible extensions,	data. Area’s to the west (west of Alligator Creek) have shown
	including the main geological interpretations and future drilling areas,	potential.
	provided this information is not commercially sensitive.	•Additional drillholes that have been detailed in the conclusion of the
		report should be completed as part of the next campaign of drilling.

Section 3 Estimation and Reporting of Mineral Resources

(Criteria listed in section 1, and where relevant in section 2, also apply to this section.)

Criteria	JORC Code explanation	Commentary
Database	• Measures taken to ensure that data has not been corrupted by, for	•The database was originally constructed by Diatreme Resources and
integrity	example, transcription or keying errors, between its initial collection	provided to Ausrocks in various file formats. Ausrocks reformatted
	and its use for Mineral Resource estimation purposes.	these databases into appropriate file formats checking that assay
	• Data validation procedures used.	results matched the documents provided from the respective
		laboratories and the logs aligned with the chip tray samples.
Site visits	• Comment on any site visits undertaken by the Competent Person and	•No site visits have been undertaken by the Competent Person, but
	the outcome of those visits.	Ausrocks Pty Ltd representative (Mining Engineer/SURPAC Modeller)
	• If no site visits have been undertaken indicate why this is the case.	has visited the site as a quality assurance/quality control exercise.
		•Each drillhole was logged, sampled, photographed and kept in chip
		trays. The photographs and chip trays were investigated by the
		competent person to verify the previous logs.
Geological	• Confidence in (or conversely, the uncertainty of ) the geological	• The Indicated and Inferred Resource Estimate was calculated for a
interpretation	interpretation of the mineral deposit.	bulk mining operation where all material between two surfaces will be
	• Nature of the data used and of any assumptions made.	extracted and processed. The current drill hole spacing with the
	• The effect, if any, of alternative interpretations on Mineral Resource	currently available analytical testing is sufficient to identify a large
	estimation.	volume of sand which could be processed to produce a high-grade
	• The use of geology in guiding and controlling Mineral Resource	silica sand product.
	estimation.
	• _The factors affecting continuity both ofgrade andgeology. _

Criteria	JORC Code explanation	Commentary
Dimensions	• The extent and variability of the Mineral Resource expressed as	•The resource boundary that has been formed is approximately 2.0km
	length (along strike or otherwise), plan width, and depth below	in length and 700m at its widest point at East Nob Point and 650m in
	surface to the upper and lower limits of the Mineral Resource.	length and 400m at it’s widest point at West Nob Point.
		•Nob Point East the top of the resource predominantly following the
		topography, the top of the resource at its highest point is 45.8 mRL to
		the lowest at 20.4mRL. Depths to the resource depth range from
		0.3m to 12m with an average depth of 1.1m. Nob Point West also
		had the top of the resource follow the topography the resource at its
		highest point is 48m with a low of 19.3m.
		•The base of the resource at East Nob Point ranges from 35.9mRL to
		6.8mRL. The surface is relatively flat with a variation of 29.1m over
		2,000m of strike. West Nob Point the base ranges from 38mRL to
		17.5mRL, which has a 20.5m change in elevation over the 650m
		strike.
		•Average thickness of the resource within the boundary is 16.7m at
		East Nob Point and 12.7m at West Nob Point.
Estimation	• The nature and appropriateness of the estimation technique(s)	•The resource layers were determined using an inverse distance
and modelling	applied and key assumptions, including treatment of extreme grade	analysis to the power of 2. With a 50m by 20m grid spacing with the
techniques	values, domaining, interpolation parameters and maximum distance	major axis aligning with the dune orientation at 330°. Minimum
	of extrapolation from data points. If a computer assisted estimation	amount of holes that influenced interpolation were 3 with a distance of
	method was chosen include a description of computer software and	interpolation set to 250m. To determine the resource boundary, the
	parameters used.	top and bottom layers were intersected with the topography surface.
	• The availability of check estimates, previous estimates and/or mine	•Check estimate completed through changing of grid orientation and
	production records and whether the Mineral Resource estimate takes	spacing when modelling the deposit.
	appropriate account of such data.	•No deleterious elements were detected during the testing which was
	• The assumptions made regarding recovery of by-products.	compiled.
	• Estimation of deleterious elements or other non-grade variables of	•No block modelling was completed as part of this resource estimate.
	economic significance (eg Sulphur for acid mine drainage	•Grade cutting or capping was not applicable as no SiO2values
	characterisation).	exceeded 100%.
	• In the case of block model interpolation, the block size in relation to	•There was an assumption that an increase in AlO2levels and
	the average sample spacing and the search employed.	moisture content indicated that the base material was clay, which
	• Any assumptions behind modelling of selective mining units.	indicated that this is the bottom of the hole and this was excluded
	• Any assumptions about correlation between variables.	from the resource estimate.
	• Description of how the geological interpretation was used to control	•The base and the top of the resource we determined by the silica
	the resource estimates.	assays completed on the 3m intervals originally and from the most
	• Discussion of basis for using or not using grade cutting or capping.	recent drilling program this is in 1m intervals. The maximum amount
	• The process of validation, the checking process used, the comparison of model data to drill hole data, and use of reconciliation data if	of material was classified as product that could be blended to ensure the grade was in excess of 99% silica. These heights were loaded

Criteria	JORC Code explanation	Commentary
	available.	into SURPAC 6.6.1 and modelled using an inverse distance
		interpolation technique.
Moisture	• Whether the tonnages are estimated on a dry basis or with natural	•Moisture content testing has been conducted on 8 holes which were
	moisture, and the method of determination of the moisture content.	logged in 1m intervals with samples sealed within plastic bags and
		then placed in canvas sample bags and were sent to ALS Townsville.
Cut-off	• The basis of the adopted cut-off grade(s) or quality parameters	•A cut-off grade of 99% silica was used to classify the Indicated and
parameters	applied.	Inferred Resource Estimate.
Mining factors	• Assumptions made regarding possible mining methods, minimum	•It is expected that a truck/shovel or dozer push to conveyor mining
or	mining dimensions and internal (or, if applicable, external) mining	method would be selected subject to additional reviews which the
assumptions	dilution. It is always necessary as part of the process of determining	deposit size does not constrain either of these methods. The
	reasonable prospects for eventual economic extraction to consider	resource was also limited to above the water table to make both of
	potential mining methods, but the assumptions made regarding	these mining methods plausible.
	mining methods and parameters when estimating Mineral Resources	•Dilution was not considered in the resource estimate. In some holes
	may not always be rigorous. Where this is the case, this should be	there was additional resource below the >99% silica floor which is
	reported with an explanation of the basis of the mining assumptions	slightly lower grade material and would only marginally dilute the
	made.	product.
		•Based on the sample assays and geological logs, the top 0.3m of the
		deposit has been excluded from the resource estimate as it is
		assumed that this would be a soil and vegetation layer and would be
		scalped when mining the deposit.
Metallurgical	• The basis for assumptions or predictions regarding metallurgical	•Down hole sample compositing was undertaken to generate a single
factors or	amenability. It is always necessary as part of the process of	bulk sample for holes CB037, CB038, CBO047, CB048, CB053 and
assumptions	determining reasonable prospects for eventual economic extraction to	CB054 was completed as part of the exploration target with infill
	consider potential metallurgical methods, but the assumptions	drilling and samples on downhole composites completed for the
	regarding metallurgical treatment processes and parameters made	Inferred Resource.
	when reporting Mineral Resources may not always be rigorous.	•It is assumed that the feed material for the proposed processing plant
	Where this is the case, this should be reported with an explanation of	be in excess to 99% SiO2. IHC Robins completed a bulk (1.8t)
	the basis of the metallurgical assumptions made.	laboratory sample to determine viability of product through a one
		stage of Mineral Technologies MG12 spiral, which yielded 99.9%
		SiO2at 88% recovery.
		•(CNBM) Bengbu Design & Research Institute for Glass Industry Co.,
		Ltd December 2018 completed another bulk (0.35t) laboratory sample
		to determine the viability of the product as high value glass product
		which resulted in 78% recovery of a >99% SiO2raw sample to 99.9%
		SiO2.
		•As this is an Inferred Resource estimate no metallurgical factors were
		considered in the resource calculation,with the bulk testingshowing

Criteria	JORC Code explanation	Commentary
		that >99% SiO2raw feed material is a suitable cut-off grade to
		produce a 99.9% SiO2processed material.
Environmenta	• Assumptions made regarding possible waste and process residue	•Due to the high-grade nature of the deposit it is expected that there
l factors or	disposal options. It is always necessary as part of the process of	will be minimal tailings produced through processing and thus
assumptions	determining reasonable prospects for eventual economic extraction to	minimal disposal.
	consider the potential environmental impacts of the mining and	•Environmentally sensitive areas have been excluded from the
	processing operation. While at this stage the determination of	resource area.
	potential environmental impacts, particularly for a greenfields project,	•There is a 50m offset either side of Alligator Creek which bisects East
	may not always be well advanced, the status of early consideration of	Nob Point and West Nob Point.
	these potential environmental impacts should be reported. Where
	these aspects have not been considered this should be reported with
	_an explanation of the environmental assumptions made. _
Bulk density	• Whether assumed or determined. If assumed, the basis for the assumptions. If determined, the method used, whether wet or dry, the	•55 density samples have been undertaken on site using a Dormer Push Tube. The in-situ density of 1.62 t/m3was an average of the
	frequency of the measurements, the nature, size and	samples across the deposit and was used to calculated the Indicated
	representativeness of the samples.	and Inferred Resource estimate. Both are reported as in-situ
	• The bulk density for bulk material must have been measured by	densities with the natural moisture profile not yet determined, with
	methods that adequately account for void spaces (vugs, porosity,	further testing required to determine the dry density if/when the
	etc), moisture and differences between rock and alteration zones	resource is taken to a JORC compliant reserve. Bulk Density
	within the deposit.	sampling procedure and data can be found in Appendix D of this
	• Discuss assumptions for bulk density estimates used in the	report.
	_evaluation process of the different materials. _
Classification	• The basis for the classification of the Mineral Resources into varying	•The deposit has an Inferred Resource Estimate of 8.7Mt and an
	confidence categories.	Indicated Estimate of 21.5Mt.
	• Whether appropriate account has been taken of all relevant factors (ie	•The most recent drilling campaign using 1m increments for logging
	relative confidence in tonnage/grade estimations, reliability of input	and sampling through the continuity of the twinned holes to those
	data, confidence in continuity of geology and metal values, quality,	previously drilled in 3m increments shows an appropriate correlation.
	quantity and distribution of the data).	Over 1,100 geochemistry samples have been taken to accurately
	• Whether the result appropriately reflects the Competent Person’s	show correlation between drillholes.
	view of the deposit.	•The result accurately reflects the competent person’s view of the
		deposit.
Audits or	• The results of any audits or reviews of Mineral Resource estimates.	•This updated Inferred Resource Estimate and a maiden Indicated
reviews		Resource Estimate. The Inferred Resource Estimate, which has
		been completed by separate competent persons and reviewed
		internally by Ausrocks Pty Ltd.
Discussion of	• Where appropriate a statement of the relative accuracy and	•It is the opinion of the competent person that the relative accuracy
relative	_confidence level inthe Mineral Resource estimate using an approach _	and confidence level in both the Inferred and Indicated Resource

Criteria	JORC Code explanation	Commentary
accuracy/	or procedure deemed appropriate by the Competent Person. For	Estimate is adequate, given the drill density and continuity of
confidence	example, the application of statistical or geostatistical procedures to	geochemical samples.
	quantify the relative accuracy of the resource within stated confidence	•The Inferred and Indicated Resource boundary is tightly constrained
	limits, or, if such an approach is not deemed appropriate, a qualitative	based on the drill density.
	discussion of the factors that could affect the relative accuracy and	•No production data is available at present as this is a Greenfields
	confidence of the estimate.	project. However Cape Flattery Silica Mine lies in the same adjoining
	• The statement should specify whether it relates to global or local	coastal dunes immediately to the North, suggesting potential viability.
	estimates, and, if local, state the relevant tonnages, which should be
	relevant to technical and economic evaluation. Documentation should
	include assumptions made and the procedures used.
	• These statements of relative accuracy and confidence of the estimate
	_should be compared with production data, where available. _

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DIATREME RESOURCES LIMITED — Capital/Financing Update 2019

64787_rns_2019-09-08_482e505c-24ee-4fac-afa4-c467392b638d.pdf

ASX ANNOUNCEMENT

Galalar scoping study emphasises high return potential

Cautionary Statement

Scoping Study Outcomes

Table 1 – Galalar Silica Project – Key Scoping Study Outcomes

Material assumptions used in Scoping Study Outcomes

Galalar Silica – Premium Quality Product – Price Expectations

(1) Logistics and Infrastructure

• Development of a purpose built barge ramp facility closer to mine site .

(2) Additional high‐value silica “ultra‐low iron” export product

(3) Additional Resource Potential

Please refer to attached scoping study for further details.

Competent Person Statement

Forward looking statements

Disclaimer

GALALAR SILICA SAND PROJECT

Contents

FIGURES

Galalar Silica Sand Project

Objectives

Key Strategic Benefits

Alternatives Investigated

Location

Tenement

Native Title

Environmental Assessment

Geology

Exploration

Mineral Resource

A-AA

B-BB

C-CC

Mineral Resource Estimate:

Metallurgical Testwork

IHCR Shaking Table Testwork

Table 3: IHCR 6 bulk sample characterisation

IHCR Spiral Separator Testwork

Production Target

Proposed Production Schedule

Mining Operations

Processing Plant

Power Supply

Water Supply

Rehabilitation

Product Logistics

Shipping

Personnel

Market and Pricing

Revenue

Cost Estimation

A description of cost estimates follows:

Forecast Financial Information

Table 17: Estimated unit cost per tonne of final product

Future Technical Studies

Development Timeframe

Project Funding

Project Delivery Schedule

JORC Code, 2012 Edition – Table 1 Report – Galalar Silica Project Indicated and Updated Inferred Resource Estimate.

Section 1 Sampling Techniques and Data

Section 2 Reporting of Exploration Results

Section 3 Estimation and Reporting of Mineral Resources

More from DIATREME RESOURCES LIMITED

DIATREME RESOURCES LIMITED Capital/Financing Update 2019