NEOMETALS LTD — Interim / Quarterly Report 2006

Jul 27, 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 JUNE 2006

COMET VALE PROJECT

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

During the quarter mining and development continued in the south extremity of the Sand Queen mine and is now intersecting the northern extent of the Sand George ore body on the 2 level. A total of 2,450 tonnes of ore was hoisted to the surface. Total extraction from the SQ2A stope was 1,730 tonnes with broken stock reserves remaining in the SQ2B stope.

Mining of the southern extremities of the Sand Queen deposit will continue with the 3 level development expected to start within the month. Geotechnical analysis of the ground conditions has been conducted to ensure safe working conditions are maintained as mining of the Sand George lodes activities come online.

A 2 kilometre long haul road was completed during the quarter for road train access to transport the ore to the Greenfields Mill, Coolgardie for processing.

The first milling campaign treated 3,089 tonnes of development ore and ore mined from stopes at the southern end of the Sand Queen mine. A total of 643 ounces of gold and 129 ounces of silver have been extracted of which 315 ounces of gold has been credited to Reed. The gravity circuit recovered about 65% of the gold and the total gold recovery was in excess of 97% (calculated from the metallurgical balance). This represents a reconciled head grade of 6.5 g/t Au. The leach and adsorption kinetics of the ore parcel were excellent and the tail grade was about 0.10 g/t.

The cash cost per ounce was A\$523, and the average price received was A\$798. "Cash costs" include all expenditures by Reed, directly incurred on mining and milling, plus overheads and all royalties. The cash cost is expected to decrease as the proportion of stoped ore to development ore increases as mining of the Sand George lodes reaches a more advanced stage.

The next milling campaign is scheduled for September 2006 and thence bi-monthly for the next three and a half years. The size of each campaign is expected to increase as mining of the Sand George lodes increases to full production. Joint venture partner Kingsrose Mining Pty Ltd is continuing to evaluate widening of a planned ventilation shaft at the south end of the Sand George lodes to a new production shaft.

Mineral Resource Increase

During the quarter a re-evaluation of the mineral resources has resulted in an increase in the combined Mineral Resource to a total of 360,000 t @ 11.8 $g/t$ Au for 136,000 ounces of gold (at 5 g/t cut-off), as listed in Table 1.

At the beginning of the guarter, an independent resource estimate (by Hellman & Schofield Pty Ltd) added an Inferred Mineral Resource of 128,000 tonnes grading 11.9 g/t Au for 49,400 ounces of gold (at a 5 g/t cut-off) along strike to the south and at depth beneath the Sand George lodes (ASX Release 9 May 2006). This used data from a successful drilling program undertaken in the previous quarter to extend the combined Mineral Resource at Comet Vale to a total of 295,000 tonnes at a grade of 12.0 g/t Au for 114,000 ounces of gold (at 5g/t cut-off).

Subsequently, an additional Indicated and Inferred Mineral Resource of 64,500 tonnes grading 10.5 $g/t$ Au for 21,800 ounces of gold (at a 5 $g/t$ cut-off) has also been calculated by Reed between the northern end of the Sand George lodes and the old Sand Queen mine. This includes the southern strike extension of the lodes in the Sand Queen mine, which were not previously mined but are currently being driven on as part of the development to access the Sand George resource to the south.

Queen lodes.
Category	Tonnes	Grade, g/t Au	Gold, ounces
Resources as at 9 May 2006
Indicated Resource	146,000	12.1	57,300
Inferred Resource	149,000	11.9	57,300
Total resource (9 May 2006)	295,000	12.0	114,600
Increase in Resources
Indicated Resource	44,400	12.0	17,100
Inferred Resource	20,100	7.4	4,750
Total resource increase	64,500	10.5	21,850
Revised Resources
Indicated Resource	190.000	12.1	74,400
Inferred Resources	169,000	11.4	62,100
Total Combined Resources	360,000	11.8	136,000

Table 1. Updated Mineral Resource estimates for the Sand Queen gold mine, Comet Vale Project (at a cut-off grade of 5 g/t Au), including the Sand George (SG1 & SG2) lodes, Sand Prince lode and southern end of Sand

Mineral Resources have been calculated using Ordinary Kriging constrained by wireframe models. All tonnage, grade and ounce values have been rounded down to three significant figures. Slight errors may occur due to this rounding of values.

The full extent of the Mineral Resources at the Sand Queen mine is illustrated in the longitudinal section in Figure 1. The gold-bearing lode structure remains open at depth and along strike to the south where previous shallow drilling has intercepted 1m $@$ 4.2 g/t Au a further 400 metres south and 1m @ 7.3 g/t Au and 1m @ 6.3 g/t Au in the same hole 800 metres further south of the Kingsrose JV boundary (Figure 1).

The increase in resources has the potential to significantly extend the mine life beyond the current plan of three and a half years.

Longitudinal section (looking west) along the Comet Vale lode structure showing Figure 1 an outline of the resources, including the latest addition between the Sand george lodes and the old Sand Queen mine workings.

Regional Exploration

Detailed geological mapping (1:2,000) has continued in the eastern area, bordering Lake Goongarrie, and along the Lady Mack-Lady Margaret line to the northwest of the Sand Queen mine. Surface rock-chip sampling of quartz reefs and mineralized shear zones in the eastern area has returned some outstanding anomalous gold and copper assays.

A detailed low-level airborne geophysical survey (25 metre flight line spacing) and a gravity survey, which are scheduled for July-August, will aid further delineation of exploration targets.

MT FINNERTY PROJECT

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

Exploration at the Mt Finnerty project focused on the successful completion of an initial drilling program by joint venture partner Portman Iron Ore Ltd (Portman). Initial surface exploration by Portman earlier in the year identified several prospective areas of surface iron enrichment (rock-chip assays in excess of 60 % Fe) spread over a distance of 35 kilometres along the strike of the greenstone belt.

Nine prospects, identified as FIN1 to FIN9 (Figure 2), were selected for a reconnaissance drilling campaign to test the depth extent of surface iron enrichment. Portman completed 28 reverse circulation (RC) drill holes for 1.497 metres of drilling at seven of the prospects (FIN1 & 2, FIN4-6, FIN8 & 9).

Location of iron ore prospects FIN1 to FIN9 (left) and the position of RC drill holes Figure 2 MFRC23 - MFRC26 in relation to surface enrichment at the FIN9 prospect (right).

The best drill results were obtained from the FIN9 prospect where all four drill holes returned significant intercepts of iron enrichment (>58 % Fe), as summarised below:

Hole ID	From (m)	To (m)	Intercept (m)	Fe $\%$	SiO 2 $\%$	Al 2 O 3 %	P %	LOI $\%$
MFRC023	5	17	12	60.09	2.94	2.20	0.080	7.77
MFRC024	16	26	10	59.88	3.54	1.67	0.096	6.80
MFRC025	13	34	21	59.72	2.77	2.74	0.120	7.94
MFRC025	73	77	4	60.19	4.71	1.70	0.029	6.56
MFRC026	22	32	10	58.73	3.59	3.03	0.130	8.26

Note: Details of drill holes and assay data are included in an announcement to the ASX, 15 June 2006

High-grade mineralisation (i.e., >58% Fe) at FIN9 was intersected on each of the two drill traverses, which are located about 200 metres apart (Figure 2). Iron enrichment appears to occur as irregular pods within a variably mineralised envelope of banded iron formation (BIF), as illustrated on interpretive cross sections of the drill holes (Figure 3).

Figure 3 Interpreted cross-sections through the southern drill traverse (left) and northern drill traverse (right) at FIN9. Drill hole locations are shown on Figure 2.

Reconnaissance drilling at the other prospects (FIN1 & 2, FIN4-6, FIN8), all south of Mt Finnerty, returned variable results with thin bands of iron enrichment approaching ore grade mineralisation.

The results from the initial drilling program are sufficiently encouraging to warrant further exploration, which will focus on the area north of Mt Finnerty in the vicinity of the FIN9 prospect and further north toward Mount Walton. This work will include detailed geological mapping and surface sampling to better delineate prospective zones within the BIF units prior to another phase of drilling.

Regional Exploration (RDR 100% all other minerals)

The Company's consultant geologist has completed compilation of data from the previous year's nickel exploration drilling program and this work is currently being evaluated.

The drill samples acquired from Portman's drilling program are being examined by our consultant geologist for inclusion in an evaluation of the Project's gold and nickel potential.

BARRAMBIE PROJECT (100%)

The Board is assessing a number of options in relation to funding a Definitive Feasibility Study, the first stage of which would entail an intensive infill and extension drilling program for the following purposes:

• To upgrade the current Indicated and Inferred Mineral Resources to Measured and Indicated Resource status.
• To extend the known resources along strike and confirm depth and grade predictions.
• To confirm mineralisation thickness and grades in historic drilling results.
• To accurately determine material densities for more precise resource modelling.
• To supply a range of material samples at various grades for a comprehensive program of metallurgical testwork at a pilot scale.

During the quarter, the drilling program was planned, based on an interpretation of an airborne magnetic survey. Metallurgical testwork to optimise the flowsheet is continuing.

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 and information that relates to Mineral Resources is based on information compiled by Mr David Potter, who are both members of the Australian Institute of Geoscientists.

Dr Peter Collins (BSc(Hons), PhD, MAIG), 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.

Mr David Potter (BSc, Dip FAI, MAIG), a full time employee of Reed Resources Ltd, produced the Mineral Resource estimates based on drilling results, assay data and geological interpretations. Mr Potter has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking 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". Mr Potter 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

Year to date

Mining exploration entity quarterly report

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

Name of entity

REED RESOURCES LTD

ABN

89 099 116 631

Quarter ended ("current quarter")

30 June 2006

Current quarter

Consolidated statement of cash flows

Cash flows related to operating activities

	Cash flows related to operating activities			SA	$(12$ months) \$Α
1.1	Receipts from product sales and related debtors			257,348	257,348
1.2	Payments for exploration and (a) evaluation			(88, 538)	(1,493,879)
		(b) development		(85, 304)	(273, 753)
		(c) production (d) administration		(156, 770)	(156, 770)
				(255, 719)	(1,415,621)
1.3 1.4	Dividends received Interest and other items of a similar nature			16,715	70,132
	received
1.5	Interest and other costs of finance paid
1.6	Income taxes paid
1.7	Other-			6,876	6,876
	Net Operating Cash Flows			(305, 392)	(3,005,667)
1.8 1.9	Cash flows related to investing activities Payment for purchases of: (a)prospects investments assets Proceeds from sale of: investments assets	(b)equity other (c) (a)prospects (b)equity (c)other	fixed fixed	(9, 449)	(19, 976)
1.10	Loans to other entities
1.11	Loans repaid by other entities
1.12	Other
	Net investing cash flows			(9, 449)	(19, 976)
1.13	Total operating and investing cash flows (carried forward)			(314, 841)	(3,025,643)

⁺ See chapter 19 for defined terms.

1.13	operating and investing cash flows Total (brought forward)	(314, 841)	(3,025,643)
	Cash flows related to financing activities
1.14	Proceeds from issues of shares, options, etc.	35,000	2,285,000
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	35,000	2,285,000
	Net increase (decrease) in cash held	(279, 841)	(740, 643)
1.20	Cash at beginning of quarter/year to date	1,892,804	2,353,606
1.21	Exchange rate adjustments to item 1.20
1.22	Cash at end of quarter	1,612,963	1,612,963

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	76,598
Aggregate amount of loans to the parties included in item 1.10 1.24

1.25 Explanation necessary for an understanding of the transactions

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	$\bullet$	MAR
3.2	Credit standby arrangements		MA

Estimated cash outflows for next quarter

4.2	Development
	Total

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 SΑ	Previous quarter SA
5.1	Cash on hand and at bank	529,946	1,419,141
5.2	Deposits at call	1,018,311	408,957
5.3	Bank overdraft
5.4	Other (bonds)	64,706	64,706
	Total: cash at end of quarter (item 1.22)	1,612,963	1,892,804

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	ELA29/603	Application	$0\%$	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,
7.3	redemptions + Ordinary
	securities	80,100,000	80,100,000
7.4	Changes during
	quarter (a) Increases	100,000	100,000		35 cents
	through issues			35 cents
	(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,
7.7	converted Options			Exercise price	Expiry date
	(description and
	conversion	2,550,000	Nil	35 cents	31/12/2008
	factor)	1,000,000	Nil	50 cents	1/7/2010
$7.8\,$	Issued during
	quarter
7.9	Exercised during quarter
7.10	Expired during
	quarter
7.11	Debentures
	(totals only)

$+$ See chapter 19 for defined terms.

Date: 28 July 2006

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 $/d$ does not ^$#$ (delete one) give a true and fair view of the matters disclosed.

GReed

Sign here:

Director/Company secretary

Print name: CHRISTOPHER JOHN REED Notes

• 1 The quarterly report provides a basis for informing the market how the entity's 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.
• The definitions in, and provisions of, AASB 1022: Accounting for Extractive 4 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.

== === === === ==

⁺ See chapter 19 for defined terms.