DIATREME RESOURCES LIMITED — Interim / Quarterly Report 2015

Oct 26, 2015

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QU A RTERLY R EPORT

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HIGHLIGHTS

• Significant gold assays returned from systematic drilling of Tick Hill tailings, strengthening prospects for reprocessing of tailings from historically rich mine

• • Tick Hill tailings bulk samples submitted for metallurgical testwork, with further studies to determine mineral resource estimate and pathway towards mining

• • Submissions received for Cyclone Project Public Environmental Review (PER); final report and environmental approvals anticipated before year-end

TICK HILL GOLD PROJECT (QLD)

Tw o programs o f exploratio n drilling hav e been com p leted over t h e Tick Hill M L’s during t he quarter, w ith the pri m ary foc u s being the tailings da m which is t h ought to c o ntain 600,0 0 0 – 650,000t of tailing s material. R econnaissa n ce drilling of the t a ilings dam in July retu r ned signific a nt gold gr a des, and infill drilling i n Septembe r confirmed the pre s ence of mi n eralised tailings, givin g a combined grade of 1.08 g/t Au for the tailings dam, w ith the eas t ern pad d ock avera g ing 1.42 g/ t Au and the western p addock 0.81 g/t Au. A total of 55 holes for 3 98m has b e en co m pleted, with 373 sample s analysed.

Tw o bulk samples have be e n submitte d for metall u rgical characterisation t e stwork as t he first ste p in a progr a m to ass e ss potential gold recov e ry options and process f lowsheet d e sign. Result s from this w ork will allo w completio n of a sco p ing study a n d guide further work.

CYCLONE ZIRCON PROJECT (WA)

The Public Envi r onmental Review (PER ) for the Cy c lone Zircon Project was released on 29 June, w i th the WA E PA setting a public r eview perio d of five we e ks followed by a four-m o nth consult a tion period with the EP A . The Offic e of the Environme n tal Protecti o n Authority (OEPA) received sub m issions fro m eight res p ondents d u ring the public revi e w period a nd DRX submitted its report res p onding to the public submission s on 6 Oct o ber 2015. An ass e ssment rep o rt for final a pprovals is a nticipated i n December 2015.

Diatr e me Resources Limited is an A ustralian base d diversified Australian S e curities Excha n ge R e gistered Offic e : mine r al explorer wit h significant projects in WA and QLD. Codes: DRX, DRXO L e vel 2, 87 Wick h am Terrace S p ring Hill, QLD 4 000 Key P rojects: Board of Dir e ctors - Non-ex e cutive: • Cyclone Zircon Pro j ect William Wan g - Chairman P o stal Address: • Tic k Hill Gold Project Andrew Tsa n g P O Box 10288 • Ca p e Bedford Silic a /HMS Project Daniel Zhua n g B r isbane Adelaide Street • Cle r mont Copper P roject Q L D 4000 Executive: The C ompany seek s to develop the Cyclone Zirco n Deposit in Neil McIntyre – Chief Execu t ive D i atreme Resources Limited Co n tact: WA, through a joi n t venture arr a ngement, an d conducts Tuan Do – C F O & Co. Secr e tary N e il McIntyre – C hief Executive exploration over a n umber of project areas pro s pective for Ian Reudave y – Chief Geologist P h one: +61 7 38 3 2 5666 heav y mineral sand s , silica sand, g o ld and copper. E m ail: manager @ diatreme.com.au The B oard and se n ior personnel exhibit wide e xperience, rangi n g through the exploration, d e velopment and financing phas e s of resource p roject manage m ent.

QUARTERLY REPORT

TICK HILL GOLD PROJECT (QLD)

The Tick Hill Gold Project comprises three granted Mining Lease No’s 7094, 7096 and 7097 (totaling 390ha). The Tick Hill Gold Deposit was mined between 1991 and 1995 by Carpentaria Gold Pty Ltd (a subsidiary of MIM Holdings Limited) for the production of 513,333 ounces of gold from 705,000 tonnes of ore at a recovered grade of 22.6 g/t gold (source: MIM – Annual Reports). This makes it one of the highest grade gold deposits in Australia’s recent gold producing history.

The transfer of the three ML’s to Diatreme Resources was confirmed by the Department in March 2015, triggering the commencement of the DRX Farm-In and Joint Venture Agreement with Superior Resources Limited (ASX:SPQ) over the Tick Hill Gold Project. Under the Joint Venture Agreement, Superior Resources has the right to earn a 50% interest in the project by:

• Completing $750,000 of exploration expenditure;

• Making a payment to DRX of $100,000; and

• Lodging 50% of the Queensland Government security bond on the tenements.

Exploration and assessment of the surface material within the leases (including alluvials, tailings and waste dumps) is to be conducted as a joint operation, with each party contributing 50% of the costs.

The Tick Hill Gold Mine operated from August 1991 through to March 1995, with commissioning of the site processing plant in December 1991. The plant comprised crushing and milling circuits delivering a product with a p80 of 70µm to a CIL circuit. Tailings were discharged in to a tailings dam comprising two paddocks of a “turkeys nest” construction in which a perimeter embankment with a clay core retains tailings. Wall heights range from 6m to 10.5m. Since decommissioning the surface has been capped and both the surface and batters seeded, with good vegetation cover now present.

The total reported production for the Tick Hill Gold Mine was 705,000t at 22.6 g/t Au for 15,900kg Au at 97% gold recovery. Some high grade open pit ore was mined and transported to the Carpentaria Gold operations at Ravenswood to provide early cash flow to the project, this has been estimated at 20,000t based on the reported 19,000oz produced at Ravenswood in the 1991/1992 financial year (with head grades for that year of 30.2 g/t Au). This suggests that approximately 685,000t of tailings remain on site, with an estimated grade around 0.7 g/t Au.

A reconnaissance drilling program was undertaken by Diatreme Resources at the Tick Hill Gold Project from Friday 17[th] July to Monday 20[th] July 2015. Drilling was completed by the company-owned and operated aircore drilling rig and included:

• 24 holes for 180m in the Tailings Dam, with 173 geochemical samples and 9 environmental samples collected. Holes were drilled at 50m x 50 spacing, with sampling commencing upon intersection of tails.

• 8 holes for 18m in the Tailings Decant Pond, with 12 geochemical samples and 5 environmental samples collected.

• 15 holes for 26m over a soil geochemical anomaly in an area of alluvial sheet wash 400m NW of the pit, with 29 geochemical samples collected.

Encouraging results were returned from the Tailings Dam, with an overall average grade of 1.04 g/t Au. Minor variability was seen in the assays, but all tailings material is mineralised within a range of 0.24 g/t Au to 3.96 g/t Au. The eastern tailings paddock returned an average grade of 1.42 g/t Au from 78 samples, whilst the western tailings dam which has been filled to a slightly higher elevation, returned 0.73 g/t Au from 91 samples.

Tailings material from the decant pond was also mineralised, with an average of 0.46 g/t Au returned from the 7 holes sampled (11 samples).

Results from the reconnaissance drilling of a historical soil gold geochemical anomaly NW of the open pit to assess the alluvial/eluvial potential were generally disappointing, with only one significant assay returned from the upper section of one hole. Weathered bedrock was encountered at generally shallow depths (between 1m and 2m) and it appears that there is insufficient mineralisation and volume of alluvium to warrant further investigation in this area.

An infill drilling program was undertaken by Diatreme Resources at the Tick Hill Gold Project from Thursday 3[rd] September to Friday 4[th] September 2015. Drilling was completed by the company-owned and operated aircore drilling rig and included:

• 31 holes for 218m in the Tailings Dam, with 200 geochemical samples collected and subsequently submitted for analysis. Holes were drilled at 50m x 50m spacing with an equidistant offset from the reconnaissance drilling.

Encouraging results were again returned from the Tailings Dam, with an overall weighted average grade of 1.12 g/t Au. Some variability was seen in the assays, but all tailings material is mineralised within a range of 0.13 g/t

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QUARTERLY REPORT

Au to 43.4 g/t Au. For the purposes of reporting, the single high grade result of 43.4 g/t Au which was returned from the southern edge of the western tails dam (i.e. coincident with tails deposition outlets) was cut to 4.0 g/t Au so that it did not unduly influence average grade calculations

The eastern tailings paddock returned a weighted average grade of 1.43 g/t Au from 86 samples, whilst the western tailings dam which has been filled to a slightly higher elevation, returned 0.81 g/t Au from 113 samples.

These infill results show good correlation with the reconnaissance drilling results, with the combined weighted average grade for the eastern paddock calculated at 1.42 g/t Au (74.1m at 1.42 g/t Au from reconnaissance drilling and 81.2m at 1.43 g/t Au from infill drilling) and the combined weighted average grade for the western paddock calculated at 0.81 g/t Au (88.8m at 0.73 g/t Au from reconnaissance drilling and 107.1m at 0.88 g/t Au from infill drilling).

The tailings dam is calculated to have an average weighted grade of 1.08 g/t Au based on the combination of reconnaissance and infill drilling (including a top cut of 4.0 g/t Au).

Bulk samples were collected during the infill drilling and a ~50kg composite sample from the central N-S line of drilling through each of the tailings paddocks has been submitted for metallurgical testwork. Results are awaited.

Upon receipt of positive metallurgical testwork results, a mineral resource estimate will be undertaken in-house and reported to market.

CYCLONE ZIRCON PROJECT (WA)

The Public Environmental Review (PER) Report for the Cyclone Project was released for public review on 29 June for a period of five weeks as required by the WA Environmental Protection Authority (EPA). The Office of the Environmental Protection Authority (OEPA) received submissions from eight respondents during the public review period and provided copies of the submissions to DRX on 24 August 2015. The OEPA also provided a summary of the submissions identifying the principle issues requiring attention by DRX.

The principle issues raised in the submissions and comments from the public included environmental and social issues as well as issues focussed on questions of fact and technical aspects of the proposal. Although not all the comments made in the submissions were of an environmental nature, DRX has responded to all the public comments and questions which are relevant to the project proposal. DRX submitted its report responding to the public submissions on 6 October 2015 to the OEPA.

As part of the approvals process DRX is negotiating an offsets package for the proposed disturbance to the Great Victoria Desert Nature Reserve which will be required for construction of the haul road from the Cyclone mine to the Forrest rail siding. DRX is continuing to provide additional project information as required to the OEPA and other regulatory authorities during the environmental approval process.

The OEPA is currently assessing the project proposal for consideration by the EPA and a recommendation is expected to be finalised by 24 November 2015. The EPA will then prepare and finalise its assessment report over a five week period including 2 weeks consultation on the draft environmental conditions with Lost Sands and key Government Agencies. Completion of the PER process is expected to result in a positive recommendation to the Minister of Environment by the EPA for approval of the Cyclone Project. This recommendation will cover the mining operation, support services, and all infrastructure, including the haul road from Cyclone to the Forrest rail siding. The timing of these activities should result in DRX receiving environmental approval for the Cyclone Project in late December 2015.

DRX plans to engage a recognised mineral sands engineering firm during the second half of 2015 to undertake a value engineering study of the mining units and wet concentrator plant planned for the Cyclone mine site. The study will review the current engineering design to identify opportunities to reduce the capital and operating cost estimates that were prepared for the PFS. One key objective is to design a compact relocatable wet concentrator which would allow significant reductions in pumping costs from the mining units to the concentrator and from the concentrator to the tailings disposal areas.

During the quarter DRX continued to engage with suppliers regarding revised pricing for logistics and services which have been subject to review due to the impacts of changes in the fuel price and exchange rate, and the downturn in the mining industry. This work is part of the preparations for completing the DFS as soon as an agreement for funding the definitive study is finalised. Indications are for more competitive pricing from suppliers than was the situation during the mining boom when the PFS was prepared.

The new phase of evaluation of the Cyclone Project continues to focus on production of heavy mineral concentrate (HMC) rather than zircon and HiTi final products. The DFS plan has been reviewed on the basis of the new project strategy and a revised budget continues to be developed as part of ongoing discussions with Chinese investors. There is surplus capacity in Chinese mineral separation plants and a shortage of heavy

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QUARTERLY REPORT

mineral resources in China to supply these plants with HMC. High priority activities for the DFS have been identified and these activities are expected to be implemented in the coming quarter on completion of the funding agreement currently being negotiated.

EUCLA BASIN HM PROJECT (WA)

No field work was undertaken during the quarter, and no exploration field work is planned for the December quarter as the company will be focussed on the Tick Hill Gold Project and Cyclone Project PER.

CAPE BEDFORD SILICA/HMS PROJECT (QLD)

Discussions are ongoing with traditional landowners to facilitate an exploration agreement for the Cape Bedford area and a letter of support for grant of EPM. This project has been identified as an important company priority to allow exploration activities to commence as soon as possible on site.

CLERMONT COPPER PROJECT (QLD)

A review of the Clermont project, and in particular the Rosevale Porphyry Corridor, is continuing, with development of a proposed exploration program and identification of project tenement area that could be relinquished. A series of partial relinquishments for all three Clermont EPM’s have been accepted by the Qld DNRM.

GRAYS HILL PROJECT (QLD)

The company has identified a number of topographic features within Quaternary sediments on the coastal plain in the eastern part of EPM25117 that may represent targets for HM accumulation. Discussions have commenced with the primary landholder to facilitate access for reconnaissance exploration. A partial relinquishment for 50% of EPM25117 was accepted by the Qld DNRM.

PROJECT TENEMENT RATIONALISATION

Diatreme's tenement holdings and applications have been reassessed throughout 2014/15 with numerous noncore tenement holdings either relinquished or abandoned.

Since launching its strategic divestment process, Diatreme has systematically consolidated its tenement portfolio from 29 exploration properties (including 13 applications and no mining leases) in early 2014, to just nine high value exploration properties (including one application) and four mining leases at the Company’s flagship Cyclone Zircon Project and the Tick Hill Gold Project.

This action has reduced tenement administration costs and will allow Diatreme to focus activity on its core projects.

CASH POSITION

The Company’s cash position at 30 September 2015 (Appendix 5B) was $515K.

APPENDIX 1

Appendix 1 provides information required under ASX listing rule 5.3.3 for mineral exploration entities.

Dated 27 October 2015 Company contact details: Tel : +61 7 3832 5660 Neil J McIntyre Email : manager@diatreme.com.au Chief Executive

Competent Person Statements

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

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QUARTERLY REPORT

APPENDIX 1

Appendix 1 provides information required under ASX listing rule 5.3.3 for mineral exploration entities.

Mining tenements held at the end of the quarter and their location

State	Tenement Name	Tenement ID	Location	Interest	Holder	Comments
WA	Wanna Lakes	E69/1920	Eucla Basin	100%	LSPL	Granted
WA	Wanna Lakes East	E69/2408	Eucla Basin	100%	LSPL	Granted
WA	Wanna South	E69/2425	Eucla Basin	100%	LSPL	Granted
WA	Cyclone	M69/141	Eucla Basin	100%	LSPL	Granted
WA	Cyclone Extended	R69/1	Eucla Basin	100%	DRX	Granted
QLD	Clermont	EPM17968	Clermont	100%	CHAL	Granted
QLD	Parapet	EPM19189	Clermont	100%	CHAL	Granted
QLD	Expedition Creek	EPM19544	Clermont	100%	CHAL	Granted
QLD	Grays Hill	EPM25117	Yeppoon	100%	DRX	Granted
QLD	Cape Bedford	EPM(A)17795	Cape Bedford	100%	DRX	Application
QLD	Tick Hill	ML7094	Duchess	100%	DRX	Granted
QLD	Tick Hill	ML7096	Duchess	100%	DRX	Granted
QLD	Tick Hill	ML7097	Duchess	100%	DRX	Granted
Mining tenements acquired and disposed of during the quarter and their location
State	Tenement Name	Tenement ID	Location	Interest	Holder	Comments
-	-	-	-	-	-	-

	Beneficial percentage interests held in farm-in or farm-out agreements at end of the quarter	Beneficial percentage interests held in farm-in or farm-out agreements at end of the quarter	Beneficial percentage interests held in farm-in or farm-out agreements at end of the quarter	Beneficial percentage interests held in farm-in or farm-out agreements at end of the quarter	Beneficial percentage interests held in farm-in or farm-out agreements at end of the quarter
State	Project Name	Agreement Type	Parties	Interest held at end of quarter by exploration entity or child entity	Comments
WA	Cyclone Zircon Project	Farm-out Heads of Agreement	LSPL and Perpetual MiningHoldingLimited	94%	HoA announced Jan 2014, initial 6% farm-out completed18 Sept2014
QLD	Tick Hill Gold Project	Farm-out and Joint Venture Agreement	DRX and Superior Resources Limited	100%	Proposed JV announced Aug 2011, formal Agreement announced June 2013, JointVenture commenced Jan 2015

Beneficial percentage interests in farm-in or farm-out agreements acquired or disposed of during the quarter

State	Project Name	Agreement Type	Parties	Interest held at end of quarter by exploration entity or child entity	Comments
-	-	-	-	-	-

Abbreviations:

E Western Australia M Western Australia R Western Australia EPM(A) Queensland EPM Queensland ML Queensland

Exploration Licence Mining Lease Retention Licence Exploration Permit for Minerals (Application) Exploration Permit for Minerals Mining Lease

DRX - Diatreme Resources Limited CHAL – Chalcophile Resources Pty Ltd LSPL – Lost Sands Pty Ltd

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