IMDEX LIMITED — Interim / Quarterly Report 2010

Oct 15, 2009

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Imdex News

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Issue 21 - Imdex Group Newsletter - October 2009
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Dear Shareholders

I am pleased to report that trading conditions over the past three months continued to show improvement. This improvement reflects the recovery in Imdex’s markets following the impact of the global financial crisis (GFC) and sudden downturn in mineral exploration in late calendar 2008.

Total revenue for the first quarter of FY10 (1Q10) was $29.5 million. Revenues for 1Q10 were slightly below 4Q09 due to some work envisaged for September being delayed to October. Had it not been for this delay, revenues would have continued the growth trend over the past two quarters. This augers well for a strong second quarter in FY10 and we expect Imdex will achieve a stronger 1H10 compared with 2H09.

EBITA for IQ10 was $4.2 million reflecting more tools on active hires. September, 2009 represented the fifth consecutive month of growth in the rental fleet. These are relatively small increases that reflect more rigs going back to work on a global basis. However, utilisation rates are forecast to grow slowly rather than increase rapidly. In addition, input costs continue to be reduced where possible.

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(All monetary references are AUD$ except where stated otherwise).

As evident from the graph to the left, trading conditions bottomed in 3Q09 and have continued to move positively since.

Drilling Fluids and Chemicals (DFC) Division

The DFC Division revenue for 1Q10 was $20.4 million and contributed 69% of Imdex’s 1Q10 revenue. Despite improving market conditions in Australia, the other major mining regions have been slower to recover from the effects of the GFC. The summer drilling season in Canada was patchy whilst Africa and Latin America lagged even further.

In terms of commodities, activity is strong around iron ore, coal and uranium whilst gold continues to improve. The junior end of the market is important to the overall level of activity in the gold sector and this remains relatively subdued at this stage.

Activity in the coal bed methane sector is set for strong conditions on the ground in calendar 2010. Imdex is currently servicing this market in drilling fluids and will continue to be the market leader going forward.

Drilling fluids in the onshore oil & gas industry continues to be a focus and we are confident of achieving budget in this area.

Down Hole Instrumentation (DHI) Division

The DHI Division contributed 31% of Imdex’s 1Q10 revenue and was 12% up on 4Q09 revenue. This reflects monthly positive tool rental movements which have continued into the first Quarter of FY10.

As stated above, 3Q09 was the low point in the cycle for Imdex and many customers. This increased to $8.2 million in 4Q09 representing further positive tool movements in the Quarter. Revenue for 1Q10 was $9.1 million, representing a 24% increase on 3Q09 and a 12% increase on 4Q09. However, 1Q10 revenue was still 48% below the peak experienced in 1Q09.

Nevertheless, confidence is returning and Imdex’s range of DHI tools for both mining and oil & gas continues to be refined and improved to ensure market leadership and consistency of performance.

The oil & gas market for DHI has proven to be more challenging as customers increase demands on performance, capability and validation. Production issues have also had a negative impact on achieving targets by the end of 1Q10. Having said that, we are confident that all major issues have been addressed and expect to be on target by the end of 1H10.

Solids Control Units (SCU)

Ongoing Progress

Imdex continues to refine the design and capability of the Surface Solids Control Units. Whilst the requirements of large international mining companies are extensive in terms of occupational health and safety issues, the benefits of satisfying these requirements will considerably outweigh the delays experienced in getting the new versions of this technology into the field.

During 1H10, Imdex expects to commence trials of an underground solids control unit and a smaller surface unit.

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Relocation of Manufacturing Facilities

The Reflex manufacturing facility at Imdex Technology in the United Kingdom has now successfully been relocated to Perth, Western Australia. The relocation was accelerated to take advantage of the downturn to minimise disruption to operations.

of upgrading the facility at Osborne Park to accommodate these moves and facilitate ongoing research, development and future growth. The integration of these manufacturing cells into Imdex’s existing main operations in Perth is expected to generate cost savings and efficiencies in FY10 and beyond and allow greater control over the manufacturing and research and development functions.

It is planned to transfer further production and R&D functions from Europe to Perth by the end of calendar 2010. We are in the process

Micro Electro Mechanical Systems (MEMS Technology)

Imdex is conducting two major projects with MEMS technology which initially applies to the Reflex Gyro and HT GyroSmart, however, will apply to other DHI tools in the future. They are:

1. GMIT5 Software Upgrade

2. North seeking capability (SensoNor, Norway)

Drilling Fluids – Oilfield

Shareholders may be aware, a specific strategy for Imdex is growing the Drilling Fluids business in the oil & gas industry. It is a large market and in 2008, Spears & Associates estimated the world market for drilling fluids in the oil & gas industry at US$8.9 billion. This increased from $4.2 billion in 2004, a massive 112% increase over 4 years. The pie chart below depicts the major players and their respective estimated market share.

Imdex’s strategy is to service and grow its business in niche onshore markets and we have recruited an industry expert to manage Imdex’s Oil & Gas Drilling Fluids Division. Marc Quesnel joined Imdex Limited on September 7th, 2009 and is intent on building the Oilfield Fluids Division into a significant global player.

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2004 Worldwide Fluids Market
$4.6 billion market size
2008 Worldwide Fluids Market
MI-Swaco, 38%
Halliburton, 23% $8.9 billion market size
39%
23%
Baker Hughes, 13%
Others, 20%
Newpark
Resources, 6%
Halliburton Corp 23%
Baker Hughes 10%
Newpark Resources 8% 10%
Others 20%
MI-Swaco 39% 20% 8%
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Gyro technology is required for down hole surveys when there is magnetic interference from existing cased wells or some other source.

In these situations, magnetic tools will not be accurate due to magnetic interference. Therefore, it is necessary to offer the market a range of instrumentation for use in various situations.

Imdex is a market leader in MEMS technology. Both of the above projects are designed to ensure this position is maintained going forward.

The GMIT5 Software Upgrade project will deliver a completely rewritten application to use for conducting a survey with the Reflex Gyro and HT GyroSmart and to display and quality assure this and other survey data.

Another purpose of this project is to ensure Imdex maintain control over source code, protect IP ownership and ensure quality of software. A key objective is to have a common software platform for all downhole instrumentation. The GMIT5 Software Upgrade is due for field testing in October, 2009.

The SensoNor project is designed to develop and build north seeking capability into the MEMS technology. The project is a three year project which commenced in 2008 and it is expected that Flexit will have first sensors for testing in late 2009 or early 2010. The project is due for completion by June 2011 and remains on track.

It is anticipated that Flexit will be the first company globally to have north seeking MEMS capability in down hole survey applications for mining and oil & gas.

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Introducing Marc Quesnel - General Manager Drilling Fluids and Chemicals - Oilfield Division

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Marc was born in France and immigrated to New Zealand as a child. He was raised and educated in New Zealand obtaining a BSc. (Hons) degree in Geology from Victoria University of Wellington, New Zealand.

He started his Oilfield career when he joined a fledgling new joint venture Oil Base Ltd as a Mud Engineer working offshore in the Southern Gas Fields of the North Sea.

In 1976, Oil Base Inc. of Houston sold their share in Oil Base Ltd to the other partner, Berry Wiggins, and BW Mud was formed. Marc was appointed as Operations Manager based in Aberdeen, Scotland. During the following 3 years, he was instrumental in building BW Mud into a significant Drilling Fluids company in the North Sea obtaining contracts with Shell, BP, Mobil and others. He left BW Mud in 1979 and joined Milchem as Manager in Cameroon, West Africa. In 1980, he was transferred back to Aberdeen as Milchem’s Area Manager for the whole of the

North Sea and Ireland. After a very successful term, he left Milchem in 1986 and returned to New Zealand where he successfully built a business and then sold it three years later. He decided to go back into the Oil Industry and was rehired by Milpark in 1990 to manage operations in the Congo and subsequently India where he spent two years. In 1996, he was transferred to INTEQ and worked as a Directional Driller for Baker Hughes Inteq in Oman. In 1998 he was reassigned to Baker Hughes Fluids as Operations Manager in Cameroon, Angola, Ivory Coast and eventually the last five years in Australia as District General Manager, Fluids for Australasia. Marc has settled in well at Imdex and is keen to grow the business further.

Flexit Target INS Update: Error Model Compliance

Flexit Australia has released an oil & gas industry recognised Tool Error Model with the completion of the Flexit Target IPM (Instrument Performance Model). The IPM is a critical tool performance validation initiative.

The Flexit Target IPM software release enables the Target wellbore data to be mapped for anti-collision and well separation planning. This is essential to every reservoir engineer involved in the project planning process. It gives the client end-user the capability to confidently and accurately plan for multiple well profiles and trajectories that are in close proximity to maximise resource recovery while minimising the risk of two wells colliding. Both the in-run and out-run Target survey data can now be plotted into an ellipse of uncertainty displaying the calculated maximum error ellipse for hole deviation possible from the known gyro survey.

The much anticipated software package has been part of an extensive Flexit driven project and delivered by Imdex Technology making the Flexit Target INS technically compliant with an industry proven and accepted Error Model.

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Flexit Target Instrument Performance Model

Displaying calculated error ellipses for in-run & out-run surveyed wellbore trajectories

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TargetINS error model
SPE #5 Mode2 Continuous type 2
Inrun: 33041208e-SURVEY_IN.csv
Outrun: 33041208e- SURVEY_OUT.csv
Station distance 30 metres
Outrun uncertainty ellipse
in Blue (transparent)
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Red Ellipse: Inrun Uncertainty Blue Ellipse: Outrun Uncertainty

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Outlook

The market outlook for both mining and oil & gas is improving as commodity prices have recovered from their lows and confidence is returning to the market place, albeit cautiously. Equity markets have been accommodating which has allowed mining companies to raise money to repair balance sheets, re-start and expand projects. This has been possible because of signs of life in the global economy, government stimulus packages and a general sense that the worst is over. Given the Asia/Pacific’s favourable location in relation to China, the region has been more aggressive on the road to recovery than many other parts of the world. Imdex is well placed to benefit from this increased level of activity.

Over the next 2-4 years, we expect that revenue from oil & gas will comprise approximately 40% of Imdex’s revenue and is forecast to exceed 25% in FY10 – a further step in the right direction. Our strategy also involves increasing revenue from rentals in both the DFC and DHI Divisions. In relation to DFC, this will mainly emanate from the solids control units whilst in DHI, this will mainly flow from the oil & gas down hole instrumentation.

As stated in our FY09 results presentation in August, 2009, the GFC and downturn in mineral exploration expenditure disrupted the upward trend of revenue and EBITA which Imdex had historically achieved. However, this upward trend is expected to resume in FY10 given the positive signs of market recovery and a number of organic growth opportunities being pursued by the Group.

Imdex has continued spending on research and development as it is crucial that market leading technologies are either developed or improved and commercialised to enable us to out-perform our competitors in the market place.

Finally you should note that Ian Burston, our Chairman of 9 years has stepped down at the completion of the 2009 Annual General Meeting held in Perth on 15 October, 2009. Mr Ross Kelly, who has been an Imdex Director since January 2004, has taken over as Chairman. Ian’s resignation has provided an opportunity to

This is an important part of our strategy that will allow us to grow our business in both the mining and oil & gas industries. One very pleasing aspect of FY09 was the increase in revenue from the oil & gas industry which represented 19% of total revenue which was up from 9% in FY08.

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Contact Details

Imdex Limited

Level 1, 15 Rheola Street West Perth 6005 Western Australia PO Box 1325 West Perth 6872 Western Australia Telephone: +61 8 9481 5777 Fax: +61 8 9481 6527 Email: imdex@imdexlimited.com Website: www.imdexlimited.com

increase the oil & gas expertise on the Board and we expect to make an announcement in this regard in 1H10.

We are indebted to Ian’s contribution over the last 9 years and wish him well in the future

Yours Faithfully,

Bernie Ridgeway Managing Director

Imdex Limited

Imdex is a Western Australian ASX listed company which provides drilling fluids and leading down hole instrumentation to the mining, oil and gas, water well and civil industries worldwide. The company has streamlined its business into two clearly defined and distinct operational divisions, the Drilling Fluids and Chemicals (DFC) Division, and the Down Hole Instrumentation (DHI) Division. The Group has a presence in all significant mining and exploration regions and has the global profile and resources to position itself for long term growth. Imdex News is published quarterly to keep the Company’s valued shareholders up to date with Imdex’s performance and principal operational activities. Your feedback is always welcome. Please send any comments or suggestions to Tina Smitherman - Group Marketing & Communications Manager at tina.smitherman@imdexlimited.com