IMAGE RESOURCES NL — Capital/Financing Update 2016

Feb 8, 2016

Ground Floor, 23 Ventnor Avenue West Perth WA 6005 Telephone +61 8 9485 2410 www.imageres.com.au ABN 57 063 977 579

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9 February 2016

Major Milestone achieved with Execution of Binding Agreement with Murray Zircon and Orient Zirconic

Image Resources NL ( Image ) is pleased to announce that following the completion of extensive due diligence, it has executed a binding agreement with Murray Zircon Pty Ltd ( Murray Zircon ) and its parent, Guangdong Orient Zirconic Ind Sci & Tech Co Ltd ( Orient Zirconic ), in relation to a series of transactions directed towards fast-tracking the development of Image’s flagship, 100%-owned, highgrade Boonanarring mineral sands project in Western Australia ( Boonanarring ).

The key elements of the transactions agreed with Murray Zircon and Orient Zirconic ( Transactions ) include:

• Acquisition by Image of a wet concentration plant ( Wet Plant ) and ancillary mining and processing equipment from Murray Zircon, being the plant which Murray Zircon operated for 3 years at its Mindarie project in South Australia until April 2015 ( Asset Purchase );

• Provision of a A$4 million short term loan facility by Murray Zircon to Image ( Short Term Loan ), to be drawn down in full at completion of the Asset Purchase ( Completion );

• Orient Zirconic to purchase 90% of all zircon products produced by Image at Boonanarring and subsequent deposits ( Zircon Products Offtake );

• Provision of a US$8 million prepayment loan facility by Orient Zirconic to Image ( Prepayment Facility ), available for drawdown following first production of 20,000 wet tonnes of heavy mineral concentrates;

• Murray Zircon to grant Image an option to purchase Murray Zircon’s mineral separation plant ( Dry Plant ) currently located at its Mindarie project in South Australia with exercise price being A$12 million ( Dry Plant Option );

• Upon Completion, as consideration for the overall transaction (other than the Dry Plant Option), Image is to issue Murray Zircon ordinary shares representing 42% of the expanded share capital of Image, based on Image’s issued share capital at Completion. If a decision to mine is reached (including financing being secured) within 2 years of Completion, Image will, at that time issue Murray Zircon further ordinary shares representing an additional 5% of the expanded share capital of Image as at Completion (i.e. if the additional shares had been issued at Completion then immediately following Completion Murray Zircon would then have been issued at Completion 47% of the immediate post Completion expanded capital).

• Murray Zircon is required (at Image’s election) to participate pro-rata in any new equity raisings undertaken by Image during the 12 month period immediately following Completion, subject to obtaining (if necessary) Image shareholder and any other necessary regulatory approvals;

• For the 2 year period after Completion (or until a decision to mine is reached, if this occurs earlier), Murray Zircon is to be subject to various restrictions, including restrictions on the sale or transfer of its shareholding in Image, not increasing its percentage shareholding in Image without Image

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Ground Floor, 23 Ventnor Avenue West Perth WA 6005 Telephone +61 8 9485 2410 www.imageres.com.au ABN 57 063 977 579

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Board approval and not taking steps to influence or control the composition of the Board or the management or policies of Image (in each case subject to certain agreed exceptions, including allowing Murray Zircon, as part of its financing arrangements, to grant security over its shareholding in Image to, and for that security to be enforced by, the Bank of China).

Upon Completion, Murray Zircon’s current Chief Executive Officer, Mr Patrick Mutz, is proposed to become Image’s Managing Director. Image’s Board will be reconstituted with effect from Completion to comprise:

1. Three directors nominated by Image, being existing Image directors Mr Chong Veoy Soo, Mr George Sakalidis and Mr Peter Thomas;

2. Three directors nominated by Murray Zircon, being Mr Chaodian Chen (current Deputy Chairman of Orient Zirconic), Mr Fei Wu (current non-executive director of Murray Zircon) and the proposed new Image Managing Director, Mr Patrick Mutz (current CEO of Murray Zircon); and

3. Mr Robert Besley, who has agreed to be appointed as the proposed new independent Chairman of Image.

Further details regarding the Transactions are contained in Appendix 1 and biographies of the proposed Image Board of Directors are contained in Appendix 2 of this announcement.

Collis Thorp, Image’s CEO, said: “Execution of the final binding agreement with Murray Zircon and Orient Zirconic is a significant milestone for Image Resources. Once completed, these transactions provide a pathway to achieving production from our flagship Boonanarring project and we look forward to working with Murray Zircon and Orient Zirconic in progressing to that point.”

Patrick Mutz, Murray Zircon’s CEO, commented: “The completion of this transaction will see the respective strengths of our companies come together with synergies that it is anticipated will allow Image to achieve an accelerated, efficient and low cost move to production of high grade, high value mineral sand resources in the heart of Western Australia’s proven mineral sands district”.

Process and Timing

Completion of the Asset Purchase is subject to satisfaction or waiver of certain conditions precedent, which are detailed in Appendix 1. These conditions include obtaining the approval of Image’s shareholders at a general meeting, for which Image expects to release in the coming weeks a Notice of Meeting containing detailed information about the Transactions and an Independent Expert’s Report. The remaining Transactions are conditional upon Completion of the Asset Purchase occurring.

Background

Murray Zircon owns and, until April 2015, operated the Mindarie Mineral Sands Project in South Australia, which it redeveloped in 2012. Murray Zircon developed positive relations with local landholders, the community and regulatory authorities and developed a strong reputation as an innovative and efficient mineral sands producer.

Orient Zirconic , which owns 65% of Murray Zircon, is one of China’s largest zircon processing companies and is reported to manufacture the most comprehensive range of zirconium products in the world. It is listed on the Shenzhen Stock Exchange (Code: 002167) with a market capitalisation of approximately RMB 4.79 billion (AU$1.01 billion) as at close of market on 5 February 2016.

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Ground Floor, 23 Ventnor Avenue West Perth WA 6005 Telephone +61 8 9485 2410 www.imageres.com.au ABN 57 063 977 579

XQ , which owns 35% of Murray Zircon, manufactures toys and games for export worldwide and is headquartered in Hong Kong. XQ is owned by four private investors that reside in China and Hong Kong.

For further information, please contact:

Collis Thorp Chief Executive Officer

M: +61 413 705 075

E: cthorp@imageres.com.au

George Sakalidis Exploration Director M: +61 411 640 337 E: george@imageres.com.au

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Ground Floor, 23 Ventnor Avenue West Perth WA 6005 Telephone +61 8 9485 2410 www.imageres.com.au ABN 57 063 977 579

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Appendix 1 – Overview of the Transactions

Asset Purchase

As part of the Asset Purchase, Image will acquire an in-pit mine slurry unit, pipelines and booster pump skids, poles and wires, complete primary concentration plant including slimes thickener, associated water tanks and HMC dewatering equipment, maintenance equipment and critical spares, laboratory equipment, mobile equipment and miscellaneous office / ablution buildings. Acquisition of these assets will result in a substantial reduction in the total capital costs required to bring Image’s Boonanarring project into production.

Comprehensive due diligence conducted by Image has confirmed that Murray Zircon’s processing equipment is of an appropriate specification to accommodate Boonanarring ore with only relatively minor upgrades.

The assets to be acquired are currently located at Murray Zircon’s Mindarie Mineral Sands Project in South Australia, where they were used in mining operations during the 3 years until April 2015. Murray Zircon will be responsible at its own cost for dismantling, loading onto an accessible hardstand and securely storing the plant and equipment prior to collection by Image. Image will be responsible at its own cost for transport of the plant and equipment to the Boonanarring project and re-assembly.

In consideration for the Asset Purchase, Image has agreed to issue Murray Zircon with ordinary shares, representing 42% of Image’s expanded share capital at the time the shares are issued on Completion. If a decision to mine (including financing being secured) is reached within 2 years of Completion, then Image will issue to Murray Zircon further ordinary shares which, when aggregated with the shares to be issued to Murray Zircon on Completion, would equate to 47% of Image’s expanded share capital immediately after Completion.

For a period of 12 months immediately after Completion, Murray Zircon is required, at Image's election, to participate pro-rata in any new equity raisings by Image, subject to obtaining Image shareholder (if necessary) and any other necessary regulatory approvals. Murray Zircon may appoint a subunderwriter for its share of any new equity raisings, subject to approval by Image (which is not to be unreasonably withheld).

Given the significance of Murray Zircon’s shareholding in Image immediately following Completion, Murray Zircon has agreed to provide certain undertakings in connection with its shareholding in Image which will apply during the 2 year period immediately following Completion (or until a decision to mine is made, if this occurs earlier), as well as agree to the implementation of an appropriate conflict of interest protocol for the Image Board of Directors. The undertakings given by Murray Zircon include:

• not to increase its voting power in Image without the prior written consent of the Image Board (with its Board nominees excluded from participating in any such decision), except in limited circumstances;

• voluntary escrow arrangements in relation to its shareholding in Image. Image has agreed to allow Murray Zircon to distribute its shareholding in Image pro-rata to its shareholders, subject always to those shares being held by those shareholders subject to the same restrictions that apply to

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Ground Floor, 23 Ventnor Avenue West Perth WA 6005 Telephone +61 8 9485 2410 www.imageres.com.au ABN 57 063 977 579

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Murray Zircon.[1] Image has also agreed that Murray Zircon may grant security over its shareholding for the purposes of its financing arrangements with the Bank of China and, if that security is enforced, for the financier to sell those shares without the same restrictions that apply to Murray Zircon;

• to support resolutions put to Image shareholders (other than resolutions relating to a change of control of Image), that are recommended by a majority of the Image Board; and

• not to take any steps to influence or control the composition of the Image Board or the management or policies of Image.

Following the expiry of that restriction period, Image and Murray Zircon will use reasonable endeavours to promptly appoint a nominee to the Board for each of Image’s two largest shareholders holding voting power in Image of 10% or more and who are not related to Murray Zircon or its shareholders, provided these shareholders are not already represented on the Board.

Completion of the Asset Purchase is subject to the satisfaction or waiver of the following conditions precedent:

• Approval of Image’s shareholders at a general meeting and receipt of a satisfactory Independent Expert’s Report opining on whether the Transactions are fair and reasonable to Image shareholders not associated with Murray Zircon and Orient Zirconic;

• All necessary regulatory approvals required by Orient Zirconic in the People’s Republic of China being obtained in connection with the provision of the Short Term Loan. Murray Zircon has informed Image that it has already received the necessary approvals under the Foreign Acquisitions and Takeovers Act 1975 (Cth) in relation to the Transactions;

• The A$4 million Short Term Loan funds are available in an Australian bank account (to Image’s satisfaction);

• Satisfactory resolution of any regulatory investigations relating to Orient Zirconic, Murray Zircon or certain related entities and officers that are ongoing or arise before Completion;

• Image and Mr Patrick Mutz executing a written employment contract in respect to his role as Image’s proposed new Managing Director;

• Murray Zircon providing releases for any outstanding encumbrances over the Wet Plant and other assets being acquired by Image; and

• The Ministerial approval required to allow the Short Term Loan to be secured by a mining mortgage over certain core tenements held by Image.

Image and Murray Zircon each have rights to terminate the Asset Purchase on certain events occurring before Completion, including unremedied material breaches of the relevant agreement (including the warranties given under that agreement), material adverse changes or insolvency events occurring, or an adverse finding being made against the other party or its related parties or officers in any regulatory investigation or inquiry that is considered to be material.

In addition, a break fee of A$250,000 will be payable by Image to Murray Zircon, or by Murray Zircon to Image, if certain events occur before Completion (including if Completion does not occur due to any necessary regulatory approvals required in the People’s Republic of China in connection with the provision of the Short Term Loan not being obtained).

1 The shareholders of Murray Zircon are Orient Zirconic Resources (Australia) Pty Ltd (a wholly-owned Australian subsidiary of Orient Zirconic) with 65% and XQ (HK) Enterprises Limited (a company incorporated in Hong Kong) with 35%.

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Ground Floor, 23 Ventnor Avenue West Perth WA 6005 Telephone +61 8 9485 2410 www.imageres.com.au ABN 57 063 977 579

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Short Term Loan

At Completion, a A$4 million short term loan facility will be established and advanced in full at Completion to Image by Murray Zircon for working capital purposes, which will assist in ensuring Image is adequately funded through to a decision to mine on Boonanarring.

The key terms of the loan include an interest rate of 5% per annum accruing daily, payment of interest half-yearly in arrears, amounts outstanding repayable upon first production of 20,000 wet tonnes of heavy mineral concentrates ( First Production ) but allows for repayment to be made using funds under the Prepayment Facility once available (early repayment is allowed at any time, though with no ability to redraw) and customary default provisions. The loan will be secured against all present and afteracquired property of Image and a mining mortgage in respect of certain core tenements held by Image.

Image is required to use its best endeavours to remove all obstacles to production from the core tenements of the Boonanarring project within 3 years of Completion. The loan may be forgiven in certain circumstances if First Production has not been achieved within that time.

Zircon Products Offtake

Under the Zircon Products Offtake, Orient Zirconic undertakes to purchase 90% of the zircon products produced by Image over life of mine from certain core tenements held by Image at prices referable to market prices.

Image retains the right to provide offtake to any alternative third party for part or all of the zircon products, subject to an effective matching right from Orient Zirconic over 90% of the zircon products.

Securing an experienced offtake partner for zircon is expected to assist Image in securing project finance, particularly as Image expects zircon to represent the majority of the Boonanarring project’s total revenue.

Prepayment Facility

Following First Production, a secured Prepayment Facility for up to US$8 million will be made available to Image by Orient Zirconic, which will assist in ensuring Image is adequately funded for the ramp-up of production at Boonanarring and may be used to repay the Short Term Loan.

The key terms of the facility include an interest rate of 9% per annum accruing daily, payment of interest quarterly in arrears, funds drawable in tranches of US$100,000 and following satisfaction of customary conditions, amounts outstanding repayable within 5 years of First Production (early repayment is allowed at any time, though with no ability to redraw) and customary default provisions. The facility will have the same security as that provided for the Short Term Loan above.

Repayment may occur earlier under the Prepayment Facility via direct cash payment or via the issue of a credit invoice for zircon products shipped and delivered to Orient Zirconic pursuant to the Zircon Products Offtake.

Dry Plant Option

In connection with the Asset Purchase, Murray Zircon has granted Image an option to acquire Murray Zircon’s Dry Plant, which is also currently located in Mindarie, South Australia, for A$12 million in cash

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Ground Floor, 23 Ventnor Avenue West Perth WA 6005 Telephone +61 8 9485 2410 www.imageres.com.au ABN 57 063 977 579

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or an equivalent amount of Image shares or a combination of both (at Image’s election). The exercise of this option is subject to approval of Image shareholders other than Murray Zircon and certain related parties and associates.

Notwithstanding the Dry Plant Option, Image remains in discussions with various other parties regarding the potential to toll-treat heavy mineral concentrate produced at Image’s North Perth Basin projects into final product. Murray Zircon is supportive of these discussions and is working with Image to determine the preferred development pathway.

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Ground Floor, 23 Ventnor Avenue West Perth WA 6005 Telephone +61 8 9485 2410 www.imageres.com.au ABN 57 063 977 579

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Appendix 2 – Biographies of Proposed Board of Directors

Mr Robert Besley – Independent Chairman

Robert Besley is a Director of KBL Mining Limited (ASX:KBL), Chairman of Silver City Minerals Ltd (ASX:SCI) and a Director of Murray Zircon, and has more than 40 years’ experience in the mining industry. Mr Besley has served in a number of Government advisory roles including several years as Deputy Chairman of the NSW Minerals Council. He holds a BSc (Hons) in Economic Geology from the University of Adelaide and he is a Member of the Australian Institute of Geoscientists. He managed the creation, listing and operation of two successful mining companies; CBH Resources Limited which he led as Managing Director from a small exploration company to Australia’s 4th largest zinc producer; and Australmin Holdings Limited (acquired by Newcrest) which brought into production a gold mine in WA and mineral sands mine in NSW. More recently he was a founding Director of KBL Mining Limited which operates the Mineral Hill copper-gold mine in NSW, is Chairman of Silver City Minerals Limited, which is actively exploring for silver-lead-zinc in the Broken Hill District and has been a Non-Executive Director of Murray Zircon from commencement of development and production from the Mindarie Mineral Sands Project. Prior to this Mr Besley’s early career was involved in the exploration and development of mineral deposits for Unocal’s (now Chevron) mineral activities in S.E. Asia, North America, Latin America, Australia and the Pacific. His activities have covered projects in precious metals, base metals, ferroalloys, mineral sands, speciality metals, uranium and coal. Through his corporate management roles Mr Besley has played a central role in project and corporate financing covering a wide range of capital structures as well as acquisitions, mergers and asset sales.

Mr Besley will resign from his position as Non-Executive Director of Murray Zircon upon Completion occurring and him being appointed as independent Chairman of Image.

Mr George Sakalidis – current Executive Director – Exploration of Image

George Sakalidis is an exploration geophysicist with over 30 years’ industry experience. His career has included extensive gold, diamond, base metals and mineral sands exploration. Mr Sakalidis has been involved in a number of significant mineral discoveries, including the Three Rivers and Rose gold deposits, the Dongara Mineral Sands Deposits, the Boonanarring-Gingin South-Helene Mineral Sands Deposits in Western Australia and he was involved in the tenement applications over the Silver Swan nickel deposit. He was also involved with the tenement application for the recently discovered Monty Copper mineralisation adjacent to the Degrussa Copper deposit. He is a founding Director and is currently an Executive Director of Image (since listing on 4 July 2002) and Meteoric Resources NL (since listing on 16 July 2004). Mr Sakalidis has also been a founding director of ASX listed companies Emu NL, Magnetic Minerals Limited (taken over by Ticor in 2003), Magnetic Resources NL and Potash West NL.

Mr Chong Veoy Soo – current Non-Executive Director of Image

Mr Soo has been a long term supporter and shareholder in Image. Mr Soo is an advocate and solicitor practising in West Malaysia with 16 years of experience in legal practice and is currently a partner in Stanley Ponniah, Ng & Soo, Advocates & Solicitors.

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Ground Floor, 23 Ventnor Avenue West Perth WA 6005 Telephone +61 8 9485 2410 www.imageres.com.au ABN 57 063 977 579

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Mr Peter Thomas – current Non-Executive Director of Image

Peter Thomas having served on ASX listed company boards for some 30 years, has been a nonexecutive director of Image since 10 April 2002. He resigned as Chair on 29 October 2014. For over 30 years until June 2011, Mr Thomas ran a legal practice on his own account specialising in the delivery of wide ranging legal, corporate and commercial advice to listed explorers and miners. Mr Thomas currently a director of listed companies Emu NL and Middle Island Resources Limited and recently of Magnetic Resources NL (resigned July 2013) and Meteoric Resources NL (resigned September 2014).

Mr Patrick Mutz – current CEO of Murray Zircon

Patrick Mutz has more than thirty years of international mining industry experience in technical (metallurgist), managerial, consulting and executive roles in all aspects of the industry from exploration through project development, mining and mine rehabilitation. He has operational experience in open cut, underground, and in-situ mining and related processing, on projects in the USA, Germany, Africa and Australia. Since his arrival in Australia from the USA in 1998, he has served as CEO / Managing Director of a number of publicly listed and private mining companies based in South Australia, Victoria and Western Australia, primarily involved with project development and company transitioning from exploration to production. Mr Mutz is a Fellow of the AusIMM and a member of the Australian Institute of Company Directors. He holds a Bachelor of Science (Honours) and an MBA from the University of Phoenix in the US. Patrick joined Murray Zircon as a senior advisor in early 2012 and served as its Chief Operating Officer during the pivotal transition period from development to operational status in the latter part of 2012. In February 2013 he was invited to take on the role as CEO and to lead the company on its goal of becoming South Australia’s newest mineral sands mining company.

Mr Chaodian Chen – Murray Zircon nominee

Mr Chen founded Orient Zirconic in 1995 and has built the company into a leading company in the zirconium industry. He served as President and Chairman of the company until mid-2013 when China National Nuclear Corporation (CNNC) became the largest shareholder in Orient Zirconic. He became the Chairman of Murray Zircon when the company was founded in 2011 as a result of Orient Zirconic’s first investment in mining in Australia. Mr Chen is the Vice President of China non-ferrous metals industry association titanium zirconium & Hafnium Branch. He holds an EMBA degree and is a Certified Engineer. He also owns a number of patents involving the processing of zircon.

Mr Fei (Eddy) Wu – Murray Zircon nominee

Mr Wu has solid operational experience in the Australian resource and mining industry. He specialises in combining the strengths of Australian upstream mining with Chinese downstream processing and end use to optimise the strategy for resource development and maximise the resource value. As the first CEO of Murray Zircon, he built and led the team to complete the development and start-up at the Mindarie mineral sands project in late 2012. Mr Wu was appointed as a Non-Executive Director of Murray Zircon in early 2013. He is currently the CEO and a Director of Queensland Mining Corporation Limited and the CEO of WIM Resources Pty Ltd. Eddy graduated from the University of Science and Technology, Beijing. He holds a Master’s Degree in Commerce (Finance) from the Australian National University and a Master’s Degree in Science from Cass Business School, City University London.

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