EASTERN RESOURCES LIMITED — Capital/Financing Update 2014

Sep 28, 2014

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ASX Announcement – 29 Sept 2014
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NOWA NOWA PROJECT – FEASIBILITY STUDY RESULTS

• Definitive Feasibility Study has confirmed many of the Scoping Study outcomes including:

• Low capital cost ‐ $33.6M

• Low production costs ‐ $26.1 per tonne of finished product at the mine gate

• Total Resource for Five Mile deposit is estimated at 9.05Mt @ 50.8% Fe at a lower cutoff of 40% total Fe

• Mining by open pit producing 780,000 tonnes of 58% Fe beneficiated magnetite per annum over a seven year mine life

 Alternative port and product transport solutions being examined.

Eastern Iron Limited (ASX:EFE) (Eastern Iron) is pleased to announce that work has been completed on the Nowa Nowa project Definitive Feasibility Study (DFS). It was previously announced (June 2014) that the Company had been advised by operators of the SEFE port facility, located near Eden in southern NSW, that they would not enter into an agreement with Eastern Iron to allow the Company to utilise the facility for export of iron ore. Therefore the Company is examining alternative port and product transport options but is not yet in a position to release the results of these studies and so finalise the DFS. The information in this statement pertains to minesite‐based activities including mining and processing.

Definitive Feasibility Study

The Nowa Nowa Iron project is based on the potential development of the Five Mile magnetite iron deposit by upgrading the ore to a beneficiated product at site then transporting this product to market by the most efficient and cost effective means. Key milestones in progressing this project have been achieved with the completion of a Native Title Agreement with the Gunaikurnai Land and Waters Aboriginal Corporation in December 2013 and the grant of the mining licence in April 2014

The study was compiled for Eastern Iron by Engenium Pty Ltd (Engenium) as an independent consultant. It is based in part on information supplied by Eastern Iron, specialist consultants, contract service operators, vendors of equipment and Engenium’s engineering and project personnel.

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Areas of responsibility in the preparation of this Study have been:

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Company
Executive Summary Engenium
Introduction Engenium
Geology and Mineral Resource Eastern Iron
Metallurgy Test Work Engenium
Mining Coffey / Engenium
Processing Engenium
Infrastructure and Utilities Engenium
Logistics Engenium
Port Facilities Engenium
Operations Management Engenium
Human Resources Engenium
Health and Safety Management Engenium
Environmental and Social Impact Earth Systems
Project Approvals Process – Mine and Port Planning & Property Partners
Cultural Heritage and Native Title Planning & Property Partners
Capital and Operating Cost Estimation Engenium / Eastern Iron
Financial Analysis Engenium / Eastern Iron
Risk Management Engenium
Project Execution Engenium
Project Status and Forward Work Program Engenium
Study document preparation Engenium
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Mineral Resource

An updated JORC compliant resource of 9.05 Mt @ 50.8% Fe was prepared by H&S Consultants for the Five Mile deposit. The estimate shown below uses historical drilling data compiled by Eastern Iron and results from recent drilling programmes and has been reported at a lower cutoff of 40% Fe.

Prospect	Measured	Measured	Indicated	Indicated	Inferred	Inferred	Total	Total
	Mt	Fe%	Mt	Fe%	Mt	Fe%	Mt	Fe%
Five Mile	2.25	52.8	4.32	50.4	2.49	49.7	9.05	50.8

This information is extracted from the report entitled “Resource Upgrade at Nowa Nowa Iron Project” announced to the ASX on 21 May 2014 and is available to view on www.easterniron.com.au. The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and, in the

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case of estimates of Mineral Resources, that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified from the original market announcement.

Mining

The Scoping Study was based on a conventional pit where the haul ramp system spirals down to the bottom of the pit and all waste is stockpiled on external waste dumps. The DFS mining model was developed by Coffey Mining Consultants in conjunction with Woodhawk Mining Consultants. This model identified the option of accessing the ore body by means of an external box‐cut, which would allow both the southern and northern sections of the pit to be mined independently. This in turn would facilitate backfill of the northern section of the pit, whilst maintaining access to the southern section of the pit as shown in Figure 1. This modification reduces waste haulage distances and results in substantial savings in unit mining costs.

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Figure 1. Proposed Pit Design

The pit design was based on the total Mineral Resource estimate provided by H&S Consultants and includes both Measured and Indicated as well as a portion of Inferred Resource (see table below). These resource estimates have been prepared by a competent person in accordance with the requirements of the 2012 JORC Code. The table below shows the relevant proportions of Measured, Indicated and Inferred Resources used in preparation of this pit design which supports the mine production schedule. A small proportion (less than 20%) of the proposed production schedule is based on Inferred Resource. There is a low level of geological confidence associated with Inferred

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Resources and there is no certainty that further exploration work will result in the determination of indicated mineral resources or that the production target itself will be realised.

Resource Classification	Mill Feed	Mill Feed
	Tonnes(Mt)	Grade(%Fe)
Measured	2.04	52.8
Indicated	3.54	50.4
Sub Total	5.58	51.2
Inferred	1.23	49.0
Grand Total	6.81	50.8

The final designed pit was marginally larger than the optimised pit due to the incorporation of separate pit accesses.

The mine production schedule is based on providing an average of 1Mtpa mill feed at an average grade of at least 50%Fe. Waste mining decreases substantially from Year 5 as the overburden is largely removed. The life‐of‐mine waste to ore ratio is 4.2 on a tonnage basis and includes material from the external ramps and box cut. It is estimated that the pre‐production period would be approximately 6‐8 months which would allow a sufficiently sized ROM stockpile to be built to supply the mill at the designed rate.

The shallow dipping almost flat, tabular attitude of the ore body allows for the use of surface miners for mining ore and waste. It is envisaged that two Wirtgen 2500 units would be supplied and operated by a contract mining group. This approach has several advantages including:

• Drill and blast requirements are eliminated.

• No requirement for storage of explosives and operating licences for handling and storage of blasting materials.

• Surface miners reduce the broken ore size so that a primary crusher is not required.

• Significant reduction to the unit mining cost.

Metallurgy

Magnetic beneficiation testwork was carried out using large pilot‐scale dry low intensity magnetic separation (Dry LIMS) equipment at Western Process Equipment (WPE) and supervised by ALS Global and Engenium in Perth, WA.

The results were a significant improvement on earlier test results completed for the Scoping Study which used smaller “laboratory scale” equipment. Highlights were as follows:

• Average iron recovery exceeded 90% suggesting little of the less magnetic hematite is being lost to the non‐magnetic fraction.

• Average product grade of 58% Fe is a significant improvement to the 56% Fe product grade realised from previous testwork.

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• Product grade is significantly improved and confirms that the Dry LIMs is highly effective in this application, even at a relatively coarse feed size of ‐6mm.

• Dry LIMS has been highly successful at reducing sulphur from feed grades usually in excess of 2% to well below 1%.

The testwork was performed with larger composite drill core samples feeding onto a 914mm diameter, variable speed rotating drum magnet. The effects of varying the drum speed together with moisture content and sizing of the feed were measured. Selected intervals of drill holes were composited into five samples with grades distributed across the range of expected ROM feed.

Initial tests on selected samples established a preferred drum speed of 2.5m/sec and a crush size of ‐ 6mm. Using these settings Dry LIMS test results from the five sample composites were as follows:

Sample ID	Head Fe %	Yield %	Conc Fe %	Fe Rec %	Conc SiO2%	Conc S%	Upgrade factor %
HS 1	44.6	71.3	54.8	88.6	15.1	0.64	22.9
HS 2	47.4	75.9	56.3	89.0	13.1	0.68	18.8
HS 3	48.8	79.9	56.0	91.5	13.2	0.76	14.8
HS 4	56.2	88.2	60.1	94.2	10.8	0.59	6.9
HS 5	57.4	89.0	62.0	94.0	9.1	0.59	7.9
Average	50.9	80.9	57.8	91.5	12.2	0.65	14.3

It is expected that further optimisation of drum speed and magnetic intensity should be possible under operating conditions to further improve product specifications.

Processing

The processing plant consists of a fairly conventional two‐stage gyratory crushing circuit producing a ‐6mm dry product feeding a rotating magnetic drum and producing a magnetic product and non‐ magnetic waste. The magnetic product is loaded from one of two stockpiles directly into trucks for transport to the export point. The waste product is conveyed back to the waste stockpile for storage pending disposal in the mined‐out pit at the end of the mining operation.

Operations Management

It is anticipated that site operations would be conducted 12 hours per day, 7 days per week. Mining operations would be performed by a contractor but all other site‐based activities including processing would be undertaken by Eastern Iron.

The total site‐based workforce would be 52 with a potentially similar number dedicated to transport of the product depending on the transport solution adopted.

It is anticipated that the workforce would be largely sourced from the local communities without a requirement for fly‐in fly‐out. As the mine site is central to a number of medium‐sized and small towns it is anticipated that the workforce would return to their homes after their shift so there is no provision for an accommodation village.

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Figure 2. Proposed Crushing Circuit and Stockpiles

Environmental and Social Impact Assessment

The project is subject to assessment under the Environmental Effects Act (1978)(EE Act) which provides the legislative framework for assessment of proposed projects that are capable of having a significant effect on the environment.

The process under the EE Act is not an approval process in its own right, rather it enables statutory decision makers (e.g. Ministers, local government and statutory authorities) to make decisions about whether a project with potentially significant environmental effects should proceed.

A referral was submitted to the Minister for Planning on the 8th November 2013 for advice as to whether an Environmental Effects Statement (EES) is required in accordance with the EE Act. On 19th December 2013, the Victorian Minister for Planning decided that Gippsland Iron (a wholly owned subsidiary of Eastern Iron) should prepare an EES under the EE Act for the project.

Draft Scoping Requirements for the EES were placed on public exhibition from 9th April 2014 to 2nd May 2014. After considering public submissions on the Draft Scoping Requirements, the Minister issued final Scoping Requirements for the EES on 4 June 2014.

The EES preparation is ongoing although activities have been temporarily suspended pending a resolution of the outstanding transport issue.

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Transport

The DFS was carried out on the assumption that the finished iron ore product would be trucked to the SEFE wharf and ship loading facility at the port of Eden and loaded onto bulk carriers for dispatch to market. The recent decision by SEFE’s shareholders not to allow access by Eastern Iron to the port facilities has caused the Company to examine other options for transport of the product to market.

Among other options is an indicative proposal from Qube Logistics, a division of Qube Holdings Limited for a full service truck and ship loading solution using Qube’s Rotabox technology and based on using the multi‐user Naval wharf which is adjacent to the SEFE wharf. Eastern Iron will investigate this option in greater detail including the size and type of ship that can be accommodated at the Naval wharf.

Assuming this option was adopted the trucking route would be the same as that which was examined in the DFS for the for the SEFE wharf option.

Total trucking distance from mine gate to port is 234km utilising existing sealed roads, in particular the Princes Highway between Nowa Nowa and the turnoff to the SEFE facility. The only modification required would be the entrance from the mine road to the Bruthen‐Buchan road which would require turn‐in and merging lanes.

The DFS assumed standard B‐double trucks with a gross mass limit of 62.5 tonnes and a normal payload of around 42 tonnes. Prior to any potential development it is anticipated that the Company would apply to the National Heavy Vehicle Regulator for permission to operate under higher mass limits (up to 68 tonnes gross) which should provide potential savings on the assumed trucking cost.

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Figure 3. Nowa Nowa project location and trucking route to Eden

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Capital Costs

The DFS has confirmed capital and operating estimates broadly in line with those previously quoted for the scoping study completed in late 2012 as follows:

Capital Cost Summary	Costs (AUD $)
Direct Costs
Mine	$3,005,028
ProcessingPlant and Materials handling	$10,651,812
Site Works	$9,815,417
Total Direct Costs	$23,472,257
Indirect Costs
Owners Costs	$2,907,294
EPCM	$2,679,308
Contingency	$4,509,523
Total Indirect Costs	$10,159,125
Total	$33,631,382

Note: Working capital is not included. Contingency has been included at 15%.

The capital cost shown in the table above has been estimated to an accuracy of +/‐ 15% and assumes the purchase of new equipment apart from the mining fleet which would be supplied by the mining contractor. It also includes the capital cost of a processing plant which in the scoping study was assumed to be provided by a contractor.

Site works include the cost of a major water management system to ensure no discharge from the site during the life of the operation. This includes three water management dams around the site including an operations dam which will contain water from pit dewatering and runoff from the waste rock stockpile.

The capital costs shown above include no allowance for any new works which may be associated with the final product transport solution.

Operating Costs

Operating costs shown in the table below are similar to those from the scoping study. Again the Company is of the view that further reductions will be made through a process of optimisation prior to development. The mining cost is a large component of the site based operating costs due to a 4.2 waste to ore ratio. Since the scoping study significant progress has been made in reducing the unit mining cost through adopting a more efficient pit and dump design which reduced waste haul distances and the application of continuous miners for waste and ore mining which removes the requirement for drill and blast.

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	Costs (AUD $/t conc)
Mining Cost	$18.67
Processing	$3.48
Indirects	$3.95
Total (Mine gate)	$26.1

Revenue

Revenue assumptions are based on the index price for iron ore less a discount for contaminants. The formula has been provided by marketing consultant Fundmax Pty Ltd and is based on extensive discussions with potential offtake groups. For the purpose of the DFS an index price of US$110/t for 62% Fe Pilbara Blend fines was assumed together with an exchange rate of 1AUD to 0.85USD. On this basis the CNF price for the 58% Fe Nowa Nowa product was assumed to be A$107/t.

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Figure 4. Nowa Nowa Project – proposed site layout

Next Steps

Assuming transport of the product to Eden and export from a port located nearby, some 70% of total costs for the production of iron product at Nowa Nowa are potentially incurred during transport of the product to market, i.e. ex‐mine gate. The decision by SEFE has provided Eastern Iron

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with opportunity to critically examine other transport options, particularly where these could offer substantial savings, which in the current climate of weak iron ore prices take on even greater importance.

Over the coming months Eastern Iron will be examining other potential transport options with a view to providing some guidance on these by the end of the year.

INVESTOR INFORMATION

Eastern Iron is investigating the potential for development of a high grade magnetite resource at Nowa Nowa in Eastern Victoria as well as other copper gold targets in the same region.

Further information, previous Eastern Iron announcements and exploration updates are available at the News and Reports tab on the Company’s website – www.easterniron.com.au

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Mr Greg De Ross Chief Executive Officer Mob: 0417 711 274

The information in this report that relates to Exploration Results, Mineral Resources and Ore Reserves is based on information compiled by Greg De Ross, BSc, who is a Fellow of the Australasian Institute of Mining and Metallurgy. Greg De Ross is Chief Executive officer and an employee of Eastern Iron Limited and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking 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 De Ross consents to the inclusion in the report of the matters based on this information in the form and context in which it appears.

ASX: EFE

For enquiries on your shareholding or change of address please contact: Boardroom Limited GPO Box 3993, Sydney NSW 2001 Phone: (02) 9290 9600

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