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DIATREME RESOURCES LIMITED Interim / Quarterly Report 2013

Oct 30, 2012

64787_rns_2012-10-30_d753f20b-b51a-48e1-8d14-af3d9e539ac9.pdf

Interim / Quarterly Report

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ASX:DRX

Exploration Activities Report Quarter ended 30 September 2012

Highlights

MINERAL SANDS PROJECTS

  • Mandora Project: Prominent ground position established in emerging Canning Basin heavy mineral province of Western Australia.

  • Cyclone Zircon Project: Progress made on haul road options, environmental studies and metallurgical testwork as part of the Definitive Feasibility Study (DFS).

  • Eucla Basin, SA: Two new exploration licences granted in South Australian sector of Eucla Basin, east of and along strike from the Cyclone Deposit.

METALLIFEROUS PROJECTS

  • Clermont Project, Qld: Antofagasta Minerals S.A. (“Antofagasta”) now proceeding to the Farm-In Phase over the copper project in central Queensland. The commitment by this international miner confirms the Company’s belief that significant potential exists, particularly in the central tenement areas, for the discovery of large scale porphyry mineralisation.

  • Gilbert River Project, Qld: Shaping up as an attractive tenement parcel for gold, silver, copper, tin, tungsten and base metals deposits.

  • Anabama Project, SA: The magnetite potential of the Braemar Iron Formation within the tenements is shaping up as an important target for “iron ore” investigation.

CORPORATE

  • Share placement funds totalling $2.54M have been raised over the past four months to be applied to the Cyclone DFS and DRX exploration projects.

Diatreme Resources is an Australian based diversified mineral explorer with significant projects in heavy mineral sands, copper, base metals and gold.

The Company owns the world class Cyclone Zircon Deposit in Western Australia, situated within the recognised Eucla Basin province, along with extensive areas of underexplored ground prospective for heavy mineral sands.

The Board and senior personnel exhibit wide experience, ranging through the exploration and development phases of resource management.

Australian Securities Exchange Codes: DRX and DRXO

Securities Ordinary shares (DRX): 441,927,156 Listed 15c options (30/09/13)(DRXO): 88,650,035

Board of Directors Executive:

Tony Fawdon - Chairman/CEO David Hall - Operations Non-executive: George White Andrew Tsang William Wang Neil McIntyre Joint Company Secretaries: Leni Stanley Tuan Do

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Key Projects:

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  • Eucla Basin Cyclone Zircon Project

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  • Clermont Copper Project

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  • Anabama Copper Project

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  • Gilbert River Base Metals Project

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Diatreme Resources Contact: Tony Fawdon Executive Chairman/CEO Phone: +61 7 3832 5666 Fax: +61 7 3832 5300

Share Registry: Link Market Services Level 15, ANZ Building 324 Queen Street, Brisbane, Q4000

DIATREME RESOURCES LIMITED ABN 33 061 267 061 Level 2, 87 Wickham Terrace, Spring Hill, Qld, 4000 PO Box 10288 Brisbane Adelaide Street Qld 4000 Telephone : +61 7 3832 5666 Facsimile : +61 7 3832 5300

Page 1 of 9

[email protected] www.diatreme.com.au

DIATREME RESOURCES LIMITED

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MINERAL SAND PROJECTS

Mandora (WA)

The new Mandora Project is centred 250km ENE of Port Headland, WA and adjacent to the coast at “80 Mile Beach”.

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The exploration licence application (E45/4022) is located on the western limits of the Great Sandy Desert. The marine sediments are believed to be Quaternary in age, deposited on a coastal plain. A prominent radiometric anomaly, 50km in length, is located within the project area and may be due to the existence of zircon within the heavy mineral bearing sands beneath the coastal plain.

DRX appears to have initiated a pegging rush into the Canning Basin with its 471 km[2] exploration licence application applied for earlier in the year. Substantial tenement areas have since been applied for by Iluka Resources and Sheffield Resources during past months over ground surrounding, and along strike from, the Company’s tenement.

Figure 1: Location of Mandora HMS Project

Cyclone Zircon Project (WA)

During the quarter, good progress has been made with evaluation of haul road options (see Figure 2) and metallurgical testwork as part of the Definitive Feasibility Study (DFS).

All drill samples from the resource infill drilling program, which was aimed at improving the Mineral Resource status and providing more detailed data for mine planning, have now been analysed for heavy mineral content. Results are being compiled and interpreted, and are wholly compatible with previous drilling and mineralisation models. Release of a revised resource estimate is dependent upon completion of mineralogical analysis, which in turn is dependent upon completion of the metallurgical testwork and confirmation of a mineralogical analytical procedure that reflects the mineral products from the Cyclone resource.

Ongoing negotiations with the Pila Nguru People continued during the quarter and three applications for Miscellaneous Licences have been lodged with government over areas required for test water bore drilling programs.

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Exploration Activities Report for the Quarter ended 30 September 2012

DIATREME RESOURCES LIMITED

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A Level One environmental studies report on three road options for connecting the proposed Cyclone minesite to the Trans Australian Railway was completed and submitted to the Department of Environment and Conservation (DEC). This environmental report is part of the process to determine an agreed access route of least potential impact. Such route will subsequently be studied in greater detail, both environmentally and culturally, prior to any lodgement of an application for a Miscellaneous Licence to be used for minesite access and as a haul road. Diatreme plans to meet with DEC in the near future to discuss the Level One report findings and recommendations. DEC’s comments on the report, which recommends a preferred route, will be critical to moving to the next phase of studies. Sustainability Pty Ltd, an environmental consultancy experienced with mineral resource development projects, has been engaged by the Company to manage and advise on environmental studies and assist with government discussions and negotiations.

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Figure 2: Cyclone Minesite to Trans Australian Railway Access/Haul Road options under consideration in Level One environmental studies report

Metallurgical testwork by Mineral Technologies (CPG) on a 12 tonne bulk sample representing the first two years of planned mining at Cyclone has progressed well. Metallurgical characterisation of four separate geological zones making up the sample was completed before compositing the four zones for Wet Concentrator Plant (WCP) processing testwork. The WCP processing work is complete and an interim report demonstrates a slight improvement in valuable heavy mineral recovery compared with the Prefeasibility Study (PFS) results. Some additional assaying work is required to finalise the WCP recoveries for the first two years of mining. The process circuit design for the WCP has essentially been finalised and full details will be available in the Process Design Report due for completion in November. The heavy mineral concentrate (HMC) produced during the WCP process testwork is now undergoing Mineral Separation Plant (MSP) test processing and the results for the MSP process design are also expected to be available in November.

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Exploration Activities Report for the Quarter ended 30 September 2012

DIATREME RESOURCES LIMITED

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Eucla Basin Exploration (SA)

Two exploration licences, ELs 5045 (Noorina 1) and 5046 (Noorina 2), were granted to Lost Sands Pty Ltd (wholly owned subsidiary of DRX) in early October for two year periods. The tenements, covering approximately 1,340 sq km, lie 80km to the east of the Cyclone (Zircon) Deposit along the same projected ancient coast line. With cultural heritage surveys and drilling traverses being completed, preparations for groundwork to explore these tenements is underway. The two tenements have a projected strike length of 100km and are deemed highly prospective for heavy mineral sands.

Cape Bedford Mineral Sands Project (QLD)

The Cape Bedford project area (Figure 3) is dominated by an extensive Quaternary sand sheet measuring 10km by 50km. The dunes have an average height of 30m (some are over 90m high) and the sequence is virtually unexplored for heavy mineral sands.

Cape Flattery Silica Mines Pty Ltd run a very large silica sand mining operation immediately south of Cape Flattery with a dedicated sand ship loading facility. The mining operations discard heavy minerals as a waste product.

Heavy mineral sands are known to occur at various horizons within the Cape Bedford / Cape Flattery area and will be subject to detailed exploration once the tenement application is granted.

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Figure 3: Location of Cape Bedford HMS Project

METALLIFEROUS PROJECTS

Clermont Copper Gold Project (QLD)

Following the six month assessment period completed during the quarter, Antofagasta Minerals S.A. (“Antofagasta”) will now proceed to the Farm-In Phase over the Clermont Copper Project (covering 1,220 sq km) in central Queensland (Figure 4).

The commitment by this international miner confirms DRX’s belief that significant potential exists, particularly in the central tenement areas, for the discovery of large scale porphyry mineralisation.

Antofagasta is targeting the highly prospective Rosevale Porphyry Corridor (RPC), a geological zone hosting copper, gold, silver and molybdenum porphyry-style mineralisation discovered by DRX in 2008, and now identified as the Rosevale Project.

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Exploration Activities Report for the Quarter ended 30 September 2012

DIATREME RESOURCES LIMITED

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Following strategic outcomes from the Initial Assessment Phase, it has been agreed between the parties that an initial exploration budget of US$700,000 be applied, with DRX as operator, toward reverse circulation (RC) and diamond drilling at three prospects - Gollan, Red Dog and Electra. Dependent upon positive results, Antofagasta would then expand its work program under the terms of the Farm-in Agreement, wherein they can earn a 51% interest in a defined area of interest by funding US$8 million in exploration expenditure over a four (4) year period.

The Rosevale Project has been identified as having potential for large buried porphyry copper - gold - molybdenum mineralised systems. Significant mineral exploration has been conducted by DRX prior to Antofagasta’s interest, including geological mapping and sampling, ground geophysics and over 6,300 metres of diamond drilling. This work resulted in the successful discovery of mineralisation at a number of individual prospects with many prospects requiring further drill testing. DRX’s Clermont Copper Project area extends over two granted tenements (EPM17968, Clermont; and EPM19189, Parapet) and one tenement application (EPMA19544, Expedition Creek) – see location plan, Figure 4. Antofagasta’s efforts are expected to be concentrated on the Rosevale Project which lies about 15km southwest of Clermont township.

Antofagasta’s Initial Assessment Phase has led to the definition of subsurface targets for further evaluation through drilling and improved upon the geological understanding of the area as a whole, from an exploration and resource perspective. The US$700,000 budget involves a 700-900m deep diamond drillhole at Gollan, where affinities with Cadia Ridgeway (NSW) host rock alteration styles have been identified, and up to 2,100m of RC percussion drilling at Elektra North and Red Dog, where previous wide intercepts of mineralisation have been drilled by DRX.

Approval for Antofagasta to move into the Farm-in Phase has now been received and the Farm-in Agreement is currently being drafted. Subsequent to DRX’s announcement of a Memorandum of Understanding with Antofagasta in March 2012, the parties have renegotiated certain commitments under the proposed agreement, which will now contain terms as follow:

  • Demarcate areas of the tenements deemed prospective for copper mineralisation as “the defined area of interest”.

  • Antofagasta to earn a 51% interest in the defined area of interest by funding US$8 million in exploration expenditures over a four (4) year period.

  • Antofagasta has the right to withdraw from the defined area of interest without earning any interest after spending up to US$1.5 million within the first year, subject to a minimum expenditure commitment of US$700,000. After meeting the US$700,000 commitment, Antofagasta may continue to spend, but can withdraw at any time without earning any interest.

  • On earning its 51% interest in the defined area of interest, Antofagasta has the option to earn, at its sole expense, an additional 9% interest (total 60%) by delivering a JORC-compliant inferred resource and completing a scoping study on at least one mineral deposit.

  • The vested interests in the defined area of interest of the parties upon completion of a JORCcompliant inferred resource and scoping study would be Antofagasta 60% and DRX 40%.

  • Forward expenditure at this stage would be prorata, with industry standard dilution practises being applied.

  • Should Antofagasta decide to withdraw from the project after vesting at 51%, DRX will retain management control of the defined area of interest and will dilute Antofagasta’s interest in accordance with industry standard practice.

  • If either party dilute to less than a 10% interest, then the diluted party shall relinquish its equity position and revert to a 1.5% net smelter return royalty.

  • DRX will be the operator in the Farm-in Phase of the project.

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Exploration Activities Report for the Quarter ended 30 September 2012

DIATREME RESOURCES LIMITED

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  • Under certain circumstances, DRX will have the right to reacquire a 100% interest in the defined area of interest by reimbursement to Antofagasta of 150% of all defined area of interest related exploration costs incurred during the farm-in period.

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Figure 4: Clermont Project Location Plan showing prospects

The exploration funding and expertise Antofagasta brings to the Rosevale Project is of immense value to DRX in advancing the potential identification, delineation and development of a large polymetallic porphyry-style mining operation in the Clermont area.

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

Copper oxide mineralisation Chalcopyrite sulphide mineralisation
Electra Prospect West Copperfield
(Rosevale Project) (Rosevale Project)
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Exploration Activities Report for the Quarter ended 30 September 2012

DIATREME RESOURCES LIMITED

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Gilbert River Base Metals Project (QLD)

The Gilbert River Project comprises six contiguous granted Exploration Permits for Minerals (EPM) and three contiguous EPM applications covering approximately 1,900 sq km and centred approximately 300km west of Townsville, north Queensland (Figure 5).

The tenements are prospective for gold, silver, copper tin, tungsten and base metals deposits. Many of the deposits are relatively small but there is size potential in some of these deposits and if amalgamated to a central processing plant then hypothetically, many mines could feed the one plant.

There have been many companies exploring the area over the years and a number of known prospects are present that require follow up. These prospects include Ortona, Big Bend/The Saddle/Black Hand, and 12 Mile/Carsons/Castle. Many other prospects require review and manipulation of the extensive geological database and ground truthing for target generation.

The project has attracted the interest of potential joint venture partners and such arrangements are being considered as a means of advancing the prospects.

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Figure 5: Gilbert River Project area showing currently identified prospective areas for follow-up

Anabama Project (SA)

Open ended copper, gold and cobalt mineralisation exists at the historic Anabama Mine over an area 3km by 200m. Deep drill testing is required for the primary target and with known VTEM survey data, numerous other untested targets remained to be drilled.

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Exploration Activities Report for the Quarter ended 30 September 2012

DIATREME RESOURCES LIMITED

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The magnetite potential of the Braemar Iron Formation within the tenements (see Figure 6) is shaping up as an important target for investigation. This has been evidenced by the increased exploration activity of other explorers along the Formation.

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Figure 6: Anabama Project area showing the prospective Braemer Iron Formation

Potential exists for DRX to interest joint venture partners in both the iron ore and base metal prospective areas of the tenements.

Tick Hill Gold Project (QLD) - DRX reducing to 50%

Advice was received during the quarter that the three Tick Hill Mining Leases (MLs 7094, 7096, and 7097) were renewed for further ten year terms (to 30 June 2021). The renewals of the Tick Hill Mining Leases satisfies one of the pre-conditions for DRX and Superior Resources Limited (ASX:SPQ) to progress the joint venture arrangements as detailed in an earlier release dated 11 August 2011. Completion of the transfer of the mining leases to DRX, a further pre-condition of SPQ’s agreement with DRX, awaits action by the Queensland Government.

CORPORATE

In July, with corporate advisor Octa Phillip as lead manager, successful private share placements in the Company were completed. At a general meeting on 30 August 2012, shareholders ratified the prior issue of 13,837,837 placement shares to professional and sophisticated investors (raising $512,000) and also approved the issue of 15,891,892 placement shares to director related interests of Mr Andrew Tsang (raising $588,000). The latter issue has resulted in Mr Tsang’s holding in the Company increasing from 21.76% to 24.21% of the issued capital.

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Exploration Activities Report for the Quarter ended 30 September 2012

DIATREME RESOURCES LIMITED

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On 5 October 2012, the Company announced arrangements to place 57,600,000 shares to sophisticated investors to raise $1.44million. Monies received from shares allotted under this arrangement will provide additional funding to progress the Cyclone Zircon Project DFS, conduct exploration on other highly prospective, but less advanced, mineral sand / metalliferous projects and for working capital.

Dated 31 October 2012

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Anthony J Fawdon Executive Chairman/CEO

Company contact details: For media queries: Tel : +61 7 3832 5666 Anthony Fensom Fax : +61 7 3832 5300 Bayly Willey Holt Email : [email protected] Tel: +61 7 3368 2355

Competent Person Statements

The information in this report, insofar as it relates to Exploration Results and Mineral Resources is based on information compiled by company personnel under the supervision of Mr David Jelley, who is a full time employee of Diatreme Resources Limited and a Member of the Australasian Institute of Mining and Metallurgy. Mr Jelley has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he has undertaken to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Jelley consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

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Exploration Activities Report for the Quarter ended 30 September 2012