NEOMETALS LTD — Interim / Quarterly Report 2006

Oct 30, 2006

97 Outram Street West Perth WA 6005 Tel: + 61 8 9322 1182 Fax: + 61 8 9321 0556

QUARTERLY REPORT FOR THE PERIOD ENDING 30 SEPTEMBER 2006

COMET VALE PROJECT

Sand Queen Gold Mine Production Joint Venture (Kingsrose Mining Pty Ltd earning 50%)

During the quarter mining and development continued past the southern extremity of the Sand Queen resource and has now intersected the northern end of the Sand George ore body on the 2 Level. A ventilation and secondary access shaft near the old Sand King workings is nearing completion.

Development driving on the Sand George main lode has defined the lode over 45m of strike and shows the ore body to be up to 3m wide (Figure 1). Work commenced on defining the first stope outline.

Figure 1 Sand George Lode on 2 Level, at 13230N, Sand Queen Gold Mine (red rule is 1 metre long).

Development also commenced on the 3 Level to prepare a water settling pond and to provide access to the Sand Queen South ore resource between the 2 and 3 levels and to the Sand George lodes further south.

Summary of mining activity:

• 2 Level: 129 metres development driving 29 metres of rising 37 metres of winzing 654 tonnes development ore hoisted to surface (stockpiled) 2.348 tonnes waste
• 3 Level: 58 m development driving

December Quarter Mining Forecast

Mining of the Sand Queen South resource on 2 Level will continue in the partially mined 2B stope, which is planned to produce $\sim$ 3,000 tonnes at a grade of 8-10 g/t gold. Mining of the 2C stope and the first of the Sand George stopes will commence in the December Quarter. Level development on 2 and 3 Level's will continue southward.

Production levels will increase with the arrival of two underground locomotives in early October, to full production level of 4,000 tonnes per month by the end of the December quarter.

The next milling campaign will commence 20 January 2007 due to scheduling constraints at the Greenfields Mill.

Figure 2 Long section looking west, Sand Queen Gold Mine

Regional Exploration

Geological mapping (at 1:2,000 scale) continued in the area to the east of the Sand Queen mine, bordering Lake Goongarrie, and along the Lady Mack-Lady Margaret line of workings to the northwest of the Sand Queen mine. A detailed low-level aeromagnetic survey and a gravity survey were completed during the quarter and are currently being interpreted by our geophysical consultants. This work will assist in better delineation of exploration targets, particularly potential gold-bearing structures such as the quartz reefs and extensive shear zones that have been mapped in the eastern area. Previous rock-chip sampling of these structures has returned some outstanding anomalous gold and copper (Figure 3).

Regional Exploration Forecast

During the next quarter, five targets are scheduled to be drill tested (Figure 3):

• RC drilling along 500m of the Lady Mack-Lady Margaret line where two 1.1m wide quartz veins have been traced at surface for over 2.5km. Rock chip sampling has returned values up to 19 g/t Au. Historical records indicate that the Lake View mine produced in excess of 7,100 t at 12 g/t Au.
• First pass RAB drilling over a 2 km long auger soil anomaly (>50 ppb Au) to the west of the Sand Queen mine.
• Detailed underground mapping of Lake View-Long Tunnel workings with follow-up RC drilling targeting the down dip/plunge of lode structures. Rockchip samples from this area have returned gold values to 36.4 g/t and copper to 1.58 %. Historical records indicate that the Lake View mine produced in excess of 7,500 t at 14.9 g/t Au and 1% tungsten.
• Follow up RC drilling beneath the Sand Prince West resource where previous drilling has indicated a new lode that was intersected over 200 metres of strike with a best intercept of 8m $@3.6q/t$ from 42m.
• RC drilling along 400m of strike at the Happy Days trend where two quartz veins have consistently returned >5q/t gold and elevated copper over 2 km.

Figure 3 Planned near mine exploration at areas outlined in blue.

MT FINNERTY PROJECT

Iron Ore Joint Venture (Portman earning 80% Fe rights)

During the quarter, iron ore exploration focused on the area north of Mt Finnerty, in the vicinity of the FIN9 prospect and further north toward Mount Walton. This work, conducted by joint venture partner Portman Iron Ore Ltd (Portman), included helicopter reconnaissance of magnetic trends north from the FIN9 target, no additional surface enriched BIF was noted.

Figure 4 Location of initial iron ore exploration targets (FIN1-FIN9) at the Mt Finnerty Project within trucking distance οf Portman's Koolyanobbing Iron Ore Project.

Initial drilling by Portman at FIN9 intersected high-grade mineralization (i.e., >58% Fe) in all four drill holes, with a best intercept of 21 metres $@$ 59.72% Fe. Iron enrichment was intersected on each of two drill traverses, located about 200 m apart, over a zone of enrichment 400m long and up to 25m wide. This zone is open to the north where it is covered by alluvium/colluvium. An exploration target of between 2 and 3 million tonnes is postulated to a depth of 100m, Portman plan to conduct in-fill and extension drilling.

Drilling of two of the original drill targets, at FIN3 and FIN7, was delayed pending completion of a botanical survey during spring. FIN7 is a zone of surface enrichment that extends for about 900 metres along strike and up to 50m wide. Drilling of these targets remains a priority and access tracks have been revised to avoid these plants and work on track construction and drill pad preparation is expected to commence in early November.

A number of surface-enriched zones to the south of FIN9, including an eastern BIF unit to the northeast of Mt Finnerty (Figure 5) will subject to detailed geological mapping and surface sampling to better delineate drill targets prior to the next round of drilling which is planned for early in the new year.

Figure 5 Location of iron ore prospects FIN6 to FIN9 (FIN7 to be drill tested) and zones of surface iron enrichment that are yet to be tested between FIN9 and Mt Finnerty

Regional Exploration (RDR 100% all other minerals)

Exploration during the quarter focused on the nickel sulphide potential of the Mt Finnerty Project. The Company engaged a consultant geologist to review and evaluate previous nickel sulphide exploration, including the Company's initial drilling program and an interpretation of aeromagnetic survey data.

This review confirmed the presence of a coherent sequence of Kambalda-style spinifex-textured ultramafic flows along the western flank of the greenstone belt (Figure 6). The ultramafic sequence is in contact with footwall basalt for much of its length and the basal ultramafic contact, which is the loci for massive nickel sulphides, is likely to be preserved.

Two priority exploration targets have been identified in the southwestern part of the project where very high MgO channel-facies rocks have been interpreted at the base of the komatiite flow sequence in contact with underlying footwall basalt. At both locations, aeromagnetic data indicates a coincident thickening of the ultramafic sequence, which is consistent with the presence of a channel.

A poorly exposed and structurally complex sequence of thin spinifex komatiite flows on the eastern flank of the greenstone belt (Figure 6) may be structural repeats of the western sequence but further work is required in this area to confirm this.

Regional Exploration Forecast

• Soil sampling over areas of interpreted channel facies to define drill targets
• RAB drilling of basal contact defined by detailed magnetics and anomalous zones of soil sampling.
• RC testing of anomalous contact zones defined by RAB drilling to fresh rock.

BARRAMBIE PROJECT (100%)

The Board is in discussions with a number of international and domestic parties in relation to the evaluation and development of the Barrambie Vanadium Project.

The Company entered into a Memorandum of Understanding ("MOU") with one of the world's leading commodity traders to market and sell the total annual vanadium output of the Barrambie Vanadium Project. The financial strength and market penetration of the counterparty supports this strategy and the project can now proceed confidently to the next stage of development of this project.

During the quarter, the Company commenced a process optimisation study which, when finalised, will result in the commencement of the Feasibility Study. Results of optimisation study are expected in November 2006.

The first stage of the Feasibility Study will entail an intensive infill and extension drilling program.

Mineral Resource estimates have focussed on a 4 km section of the Barrambie deposit referred to as the Bav-Cove and Gulf zones (Figure 7).

Geological mapping and geophysics indicate that the Eastern and Central Bands continue for 6 km to northern boundary of the tenement.

Barrambie contains over 148 million tonnes of mineralisation in the Central and Eastern Bands, with 25 million tonnes $(-12$ yr mine life) planned to be mined from the Eastern Band to a depth of 50 metres below surface (previously announced in the PFS study).

Further additions to the resource along strike would significantly enhance financial performance.

Figure 7 Location of resources in the Bay-Cove and Gulf zones, Barrambie Project

NEW PROJECTS

During the quarter, the Company applied for one exploration licence in the West Musgrave and two prospecting licences north-west of Kalgoorlie.

The exploration licence application in the Musgrave province covers the northwest portion of the mafic-ultramafic Bell Rock Range intrusion (Figure 8) which was previously held by Rio/Delta Gold. Rio concluded that the northeastern contact (~35 km) was highly prospective for nickel sulphide mineralization but surrendered the tenements following difficulty in obtaining land access.

Figure 8 Location of exploration licence application in the Musgrave province.

CORPORATE

During the quarter, Director Ian Junk exercised 250,000 unlisted Employee Share Options at 35 cents.

The company encourages shareholders and interested parties to visit our website (www.reedresources.com) to register to receive announcements electronically.

D J Reed CHAIRMAN

Competent Persons

Information in this report that relates to Exploration Results is based on information compiled by Dr Peter Collins (BSc(Hons), PhD, MAIG). Dr Collins, a Director of Reed Resources Ltd, has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which is being 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'. Dr Collins consents to the inclusion in this report of the matters based on his information in the form and context in which it appears.

Appendix 5B

Rule 5.3

Mining exploration entity quarterly report

Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001.

REED RESOURCES LTD

ABN

89 099 116 631

Quarter ended ("current quarter")

Current quarter

30 September 2006

Year to date

Consolidated statement of cash flows

Cash flows related to operating activities

Cash flows related to operating activities			SΑ	$(12$ months) \$Α
1.1	Receipts from product sales and related debtors		0	Ω
1.2	Payments for (a) evaluation	exploration and	(164, 720)	(164, 720)
		(b) development	(164, 440)	(164, 440)
	(c) production	(d) administration	(18, 483) (418, 443)	(18, 483) (418, 443)
1.3	Dividends received
1.4	Interest and other items of a similar nature received		10,983	10,983
1.5	Interest and other costs of finance paid
1.6	Income taxes paid
1.7	Other-
	Net Operating Cash Flows		(755, 103)	(755, 103)
1.8 1.9 1.10 1.11	Cash flows related to investing activities Payment for purchases of: (a)prospects (b)equity investments other fixed (c) assets Proceeds from sale of: (a)prospects (b)equity investments (c)other fixed assets Loans to other entities Loans repaid by other entities		(3, 113)	(3, 113)
1.12	Other
	Net investing cash flows		(3, 113)	(3, 113)
1.13	Total operating and investing cash flows (carried forward)		(758, 216)	(758, 216)

⁺ See chapter 19 for defined terms.

1.13	Total operating and investing cash flows (brought forward)	(758, 216)	(758, 216)
	Cash flows related to financing activities
1.14	Proceeds from issues of shares, options, etc.	87,500	87,500
1.15	Proceeds from sale of forfeited shares
1.16	Proceeds from borrowings
1.17	Repayment of borrowings
1.18	Dividends paid
1.19	Other - Capital raising costs
	Net financing cash flows	87,500	87,500
	Net increase (decrease) in cash held	(670, 716)	(670, 716)
1.20	Cash at beginning of quarter/year to date	1,612,963	1,612,963
1.21	Exchange rate adjustments to item 1.20
1.22	Cash at end of quarter	942,247	942,247

Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities

	Current quarter АS
Aggregate amount of payments to the parties included in item 1.2 1.23	147,196
Aggregate amount of loans to the parties included in item 1.10 1.24

1.25 Explanation necessary for an understanding of the transactions

$\mu$ Office rent and service fees paid to a company related to a director	\$32.891
Salary and superannuation payable to directors	\$114,305

Non-cash financing and investing activities

$2.1$ Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows

$2.2$ Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest

⁺ See chapter 19 for defined terms.

Financing facilities available

Add notes as necessary for an understanding of the position.

		Amount available SΑ	Amount used SΑ
-3.1	Loan facilities		w
3.2	Credit standby arrangements		w

Estimated cash outflows for next quarter

	Total	300,000
4.2	Development
4.1	Exploration and evaluation	300,000
		\$Α

Reconciliation of cash

	Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows.	Current quarter \$A	Previous quarter SА
5.1	Cash on hand and at bank	77,541	529,946
5.2	Deposits at call	800,000	1,018,311
5.3	Bank overdraft
5.4	Other (bonds)	64,706	64,706
	Total: cash at end of quarter (item 1.22)	942,247	1,612,967

Changes in interests in mining tenements

		Tenement reference	Nature of interest (note (2))	Interest at beginning of quarter	Interest at end of quarter
6.1	Interests in mining tenements relinquished, reduced or lapsed
6.2	Interests in mining tenements acquired or increased	ELA69/2293 PLA16/2350 PLA16/2351	Application Application Application	$0\%$ $0\%$ $0\%$	100% 100% 100%

$+$ See chapter 19 for defined terms.

Issued and quoted securities at end of current quarter
Description includes rate of interest and any redemption or conversion rights together with prices and dates.

		Total number	Number quoted	Issue price per security (see note $3)$ (cents)	Amount paid up per security (see note 3) (cents)
7.1	Preference
	i securities
	(description)
7.2	Changes during quarter
	(a) Increases
	through issues
	(b) Decreases
	through returns of capital, buy-
	backs,
	redemptions
7.3	+ Ordinary	80,350,000	80,350,000
	securities
7.4	Changes during
	quarter
	(a) Increases through issues
	(b) Decreases
	through returns
	of capital, buy-
7.5	backs + Convertible
	debt securities
	(description)
7.6	Changes during
	quarter
	(a) Increases through issues
	(b) Decreases
	through
	securities
	matured, converted
7.7	Options			Exercise price	Expiry date
	(description and conversion
	factor)	2,300,000 1,000,000	Nil Nil	35 cents 50 cents	31/12/2008 1/7/2010
		700,000	Nil	75 cents	30/6/2011
7.8	Issued during	700,000	Nil	75 cents	30/6/2011
	quarter
7.9	Exercised during quarter	250,000	Nil	35 cents	31/12/2008
7.10	Expired during
7.11	quarter Debentures
	(totals only)

$+$ See chapter 19 for defined terms.

Compliance statement

• Ì This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 4).
• $\overline{2}$ This statement does /does not ^$#$ /delete one) give a true and fair view of the matters disclosed.

Gheed

Sign here:

Director/Company secretary

Date: 31 October 2006

Print name:

CHRISTOPHER JOHN REED

Notes

• The quarterly report provides a basis for informing the market how the entity's 1 activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.
• $\overline{2}$ The "Nature of interest" (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2.
• 3 Issued and quoted securities The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities.
• 4 The definitions in, and provisions of, AASB 1022: Accounting for Extractive Industries and AASB 1026: Statement of Cash Flows apply to this report.
• 5 Accounting Standards ASX will accept, for example, the use of International Accounting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.

$\equiv$ $\equiv$ $\equiv$ $\equiv$ $\equiv$ $\equiv$ $\equiv$

⁺ See chapter 19 for defined terms.