DIATREME RESOURCES LIMITED — Capital/Financing Update 2019

Aug 4, 2019

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ASX ANNOUNCEMENT

5 August 2019

Offtake, EPC deals progressing for Cyclone Zircon Project

• Memorandum of Understanding (MOU) signed with Hunan Rare Earth Industry Group for potential life of mine (LOM) offtake of heavy mineral concentrate (HMC) product and potential investment into Diatreme’s Cyclone Zircon Project, WA

• Expression of Interest (EOI) received from MCC International for potential provision of engineering, procurement and construction services (EPC) to Cyclone and assistance in sourcing project finance

• Other potential project participants’ interests currently being formalised amid strong demand and constrained supply for zircon.

Min e ral and silica sands dev e loper Diatr e me Resour c es Limited ( A SX:DRX) announced to d ay new proposed agreements for its Cyclone Zircon Projec t located in t he zircon‐ri c h Eucla Bas i n, with de m and heatin g up for its high grade zircon‐do m inant HMC product.

The a greements follow Janu a ry’s appoin t ment of in d ependent c o rporate ad v isers Blackbird Partners (refer ASX ann o uncement 2 3 January 2 0 19) with the aim of ext r acting maximum value f or sharehol d ers from C y clone, one o f only a handful o f major zirc o n‐rich disco v eries over the past dec a de.

Diat r eme contin u es to enga g e in detaile d discussion s with a ran g e of other potential pro j ect particip a nts in addition to t h ese identifi e d parties. Amid strong interest in C y clone, the C ompany ca n advise the f ollowing non‐binding agreements con c erning the W estern Au s tralian proj e ct:

(1) MOU with China’s Hunan Rare Earth Industry Group Ltd (HRE)

HRE , whose par e nt holding c ompany is H unan Gold C orporation Ltd (see bel o w) has exe c uted a non‐binding MO U with particular i n terest in H M C product o fftake. Key t erms inclu d e an immediate progre s sion to mor e binding agreements, an d examination of the pot e ntial for di r ect project p articipation (investmen t ).

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Spe c ifically duri n g the curre n t negotiati o n process, H RE has expressed its int e rest in acq u iring 100% o f available H MC for the life of th e mine (LOM), which is under furthe r consideration by Diatreme.

HRE ’ s General M anager, Long Songbai s a id: “We loo k forward to progressing with Diatre m e our HM C offtake disc u ssions on t h is high qual i ty project a s soon as po s sible to more binding a g reements. ”

(2) Expression of interest (EOI) from MCC International Corporation Ltd (MCC)

MC C , part of the China Min m etals Grou p (see below ) has expres s ed interest in providing engineerin g , procurem e nt and constructio n (EPC) servi c es to Cyclo n e, in additi o n to assisti n g in sourcin g suitable (C h inese bank s and lendin g insti t utions) pro j ect finance t o facilitate d evelopment. Key terms include both parties ad v ancing tow a rds more binding agreem e nts, subject to suitable n egotiations.

MC C has a representative of f ice in Perth , has undert a ken EPC co n tracts for a range of re s ource projects in Western Australia and he n ce is famili a r with Aust r alian stand a rds and requirements o f the resour c e sector. A d ditionally, C hina Min m etals grou p company, C hina ENFI Engineering u ndertook C y clone’s definitive feasi b ility study (refer ASX ann o uncement 1 5 November 2018), ma k ing it well i m mersed in t he project.

Cautionary Note : The Comp a ny notes b o th the MOU and EOI ar e non‐bindin g at this sta g e and whils t both partie s hav e agreed to m ove forwar d in good fa i th, there is a material u n certainty a s to whether these will l e ad to more binding agreem e nts.

Next steps for Cyclone

Diat r eme is focused on achi e ving the following goals for Cyclone :

• Advanci n g discussio n s to potent i ally binding agreements with both H RE and MC C , providing s uitable final ter m s are agree d ;

• Progres s ing discussi o ns with other intereste d parties;

• Assembling the final commercial mix of parties into bind i ng agreements that will facilitate commercial dev e lopment of Cyclone;

• Achieving the best p o ssible com m ercial outcome for Dia t reme, whic h may inclu d e a significant interest i n a fully developed p roject generating ongoing revenue s for the Co m pany.

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Development timeline

Diat r eme is wor k ing toward s a detailed u nderstandi n g on which parties will b e participa t ing in vario u s aspects of proj e ct develop m ent, followed by formal binding ag r eements being put in pl a ce. The Co m pany antic i pates these disc u ssions progressing rapi d ly during the third quar t er 2019.

The C ompany w i ll keep the m arket infor m ed as thes e negotiatio n s progress, together wi t h any pote n tial entry o f oth e r participan t s.

Diat r eme’s CEO, Neil McIntyre said the agreements s howed the p otential for Cyclone to b ecome a p r ofitable ne w min e for Western Australia, p roviding n e w jobs and investment f or the bene f it of the co m munity, in c luding the trad i tional own e rs.

“We are delight e d by the hi g h level of in t erest in Cy c lone, which has rapidly a dvanced fo l lowing last y ear’s positi v e DFS and are con f ident of pr o gressing th e se negotiati o ns toward s a successful outcome f o r all parties , ” he said.

“In a ddition to C y clone, our e merging G a lalar Silica Project in Far North Que e nsland is sh o wing pote n tial to beco m e a new source of p r emium qua l ity silica for fast‐growin g Asian mar k ets.

“Wi t h growing demand and c onstrained supply for b o th silica an d mineral sands, Diatre m e is on trac k to generat e incr e ased share h older value as we achie v e our development tar g ets.”

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

About Hunan Rare Earth Industry Group Ltd (HRE)

HRE ’ s parent co m pany is Hu n an Gold Co r poration Li m ited, form e rly Chenzh o u Mining G r oup Co., Ltd, a Shenzen listed company with a market capi t alisation of RMB 12 Bill i on (A$2.5 b i llion) princi p ally engage d in the exploration, mi n ing, sme l ting and pr o cessing of nonferrous m etal. The company's main products i nclude gold , pure antimony, antimony oxid e , ethylene g lycol, anti m ony, zircon a nd tungste n products, w hich are di s tributed in d omestic an d overseas mar k ets.

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About MCC International Corporation Ltd (MCC)

MC C is a large majority stat e owned ent e rprise in China, listed o n the Shang h ai and Hon g Kong stock exchanges w ith 201 8 revenues exceeding U S $37 billion ( A $54 billion ) . It is know n as the mos t “internati o nal” of the C hinese stat e ‐ owned mining a n d project d e velopment companies w ith operati o ns around t he world.

MC C ’s parent is C hina Minm e tals, headquartered in B eijing and t he nation’s l argest met a ls and mine r als group, w ith 1.6 trillion renm i nbi (A$339 b illion) in to t al assets, h a ving ranked 120th in th e Fortune Gl o bal 500 for 2016. It is eng a ged in the p roduction a n d trading o f metals an d minerals, i n cluding cop p er, alumini u m, tungste n , tin, antim o ny, lead , zinc, and n i ckel. It is one of the largest metals and minerals trading companies in th e world and the largest iron and steel trader in China. Th e company h andles mor e than 12 m i llion tons of steel produ c ts annually . It also trad e s iron , coke, coal, c opper, zinc , and lead.

About Cyclone Zircon Project

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

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

A D e finitive Fea s ibility Study was compl e ted in Nove m ber 2018 b y China EN F I Engineering Corp., par t of the lead i ng China Minmetal s group, rea f firming Cycl o ne’s poten t ial as the la r gest undev e loped zirco n dominant h eavy minerals proj e ct in the w o rld‐class Eu c la Basin (re f er map bel o w).

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Figure 1: Cyclone Project Location

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Forward looking statements: Thi s document ma y contain forwa r d looking state m ents. Forwar d looking state m ents are often, but not alway s , identified by the use of words such a s “seek”, “indi c ate”, “target”, “ a nticipate”, “for e cast”, “believe ” , “plan”, “estim a te”, “expect” a n d “intend” and state m ents that an e v ent or result “ m ay”, “will”, “sh o uld”, “could” or “might” occur o r be achieved a nd other simil a r expressions. Indications of, a nd inter p retations on, future expected e xploration results or technical o utcomes, pro d uction, earning s , financial pos i tion and perfor m ance are also forward-looking stat e ments. The fo r ward-looking s t atements in thi s presentation a re based on c u rrent interpret a tions, expectat i ons, estimates, assu m ptions, foreca s ts and projecti o ns about Diatr e me, Diatreme’ s projects and a ssets and the industry in whic h it operates as well as other f a ctors that m anagement believes to be rel e vant and reas o nable in the ci r cumstances at the date that s u ch statements a re made. The forward-lookin g state m ents are subj e ct to technical, business, economic, competit i ve, political an d social uncerta i nties and conti n gencies and m ay involve kno w n and u nknown risks a n d uncertaintie s . The forward - looking statem e nts may prove to be incorrect. Many known a nd unknown f a ctors could ca u se actual events or res u lts to differ materially from the estimated or a n ticipated even t s or results expressed or impli e d by any forw a rd-looking state m ents. All forw a rd-looking statements made i n this presentat i on are qualifie d by the foregoi n g cautionary s t atements.

Disclaimer: Diatre m e and its relat e d bodies corporate, any of the i r directors, offi c ers, employee s , agents or co n tractors do not make any repre s entation or wa r ranty (either e x press or implied) as to the ac c uracy, correctness, completeness, adequacy, reliability or lik e lihood of fulfil m ent of any f o rward-looking s tatement, or a n y events or re s ults expressed or implied in a n y forward looking statement, e xcept to the extent required b y law. Diatr e me and its rel a ted bodies cor p orate and eac h of their respe c tive directors, o fficers, employ e es, agents an d contractors di s claims, to the maxi m um extent per m itted by law, a ll liability and r e sponsibility for any direct or indirect loss or d a mage which m ay be suffered by any person (including because of fault or neglig e nce or otherwise) through us e or reliance on anything conta i ned in or omitt e d from this presentation. Oth e r than as re q uired by law a n d the ASX Listing Rules, Diat r eme disclaims a ny duty to up d ate forward looking statement s to reflect new developments.

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