NEOMETALS LTD — Interim / Quarterly Report 2014

Oct 30, 2013

Level 1, 672 Murray St West Perth WA 6005

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ABN 89 099 116 631
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Locked Bag 8 West Perth WA 6872 Tel: +61 8 9322 1182 Fax: +61 8 9321 0556

ASX Release 3 October 2013

QUARTERLY ACTIVITIES REPORT For the quarter ended 30 September 2013

Highlights:

Meekatharra Gold Operation

• Ounces mined and processed adversely impacted by a decline in the mine to mill ounces reconciliation leading to appointment of Administrators to the Company’s subsidiary GMK Exploration Pty Ltd on 16 August 2013

• Mt Marion Lithium Project

• “Proof of Technology” test work program on wholly owned proprietary flow sheet to produce battery grade Lithium Hydroxide nearing completion

• Barrambie Titanium Project

• New Mineral Resource Estimate confirms Barrambie is one of the world’s highest grade titanium deposits, 47.2 Mt @ 22% TiO2

• Scoping Study to produce high purity TiO2 directly from Barrambie ore commenced

• Mt Finnerty Nickel Project

• Two independent petrology reports confirm primary nickel-copper sulphides in narrow (9cm) shear zone

Corporate

• Board and management restructure, major cost reduction program implemented

• Cash and restricted access term deposits $9.818 million

• Standby funding facility from Chairman David Reed executed

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CORPORATE

Administrators appointed to GMK Exploration Pty Ltd

On the 16[th] August 2013, Reed Resources Ltd ( ASX: RDR ) ( “Reed” or “the Company” ), announced that GMK Exploration Pty Ltd (“GMKE”), the subsidiary of Reed that owns and operates the Meekatharra Gold Project was placed in voluntary administration.

Gold production at the Meekatharra Gold Project during the June quarter was adversely affected by lower head grade, which was principally attributed to the loss of high grade ore tonnes previously mined from the legacy Bluebird open pits that were included in the Bluebird Reserve. June quarter gold production was also adversely affected by the mine-to-mill ounces reconciliation, which declined materially from that previously achieved up until June.

The strategies implemented to mitigate the short-term cash flow impact of these trends contributed to an improved mine-to-mill ounces performance in July. However, mine-to-mill ounces reconciliation in the first two weeks of August underperformed, placing further strain on GMKE’s cash flows. The Board of Reed explored all potential funding sources in the available timeframe however were unable to secure further funding to allow the ongoing operation of the Meekatharra Gold Project.

The Company is working with the Administrators to optimise the outcome for all concerned, including Reed. The Administrator continues to operate the mine and has commenced a formal sale process.

Reed itself remains solvent.

Chairman, David Reed committed to provide a standby facility of up to $3 million to support the Company’s working capital position, with definitive agreements executed and announced on the 27[th] September 2013.

Reed has conducted a material restructure to its board and management team and scaled down its cost profile to reflect the developmental stage of its two remaining core assets. Reed is seeking to divest itself of its non-core assets to strengthen its balance sheet.

Reed CEO, Luke Tonkin resigned and Chris Reed resumed the role of CEO/MD on a scaled back remuneration basis, consistent with the overall strategic philosophy, effective 1 October 2013. The board of Reed has been reduced to one (only) executive and 3 (only) non-executives, including the Chair, and volunteered a significant reduction in directors’ fees. Cobb Johnstone, who joined the board earlier this year with strong mining and processing experience, retired on the 30 September 2013.

Finances (unaudited)

Cash and term deposits on hand as of 30 September 2013 totalled $9.818 million, including $8.859 million in restricted use term deposits supporting performance bonds and other contractual obligations.

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MEEKATHARRA GOLD OPERATION

(Reed 100%)

The Meekatharra Gold Operation, centred on the Bluebird processing plant, is located 640km northeast of Perth and 10 km south of Meekatharra, in the Murchison Region of Western Australia.

Operations 1[st] July to 15[th] August (inclusive)

Mining

Year to date (to 15 August) total material movement of 5.184 million BCM represents 87% of the total life of mine material to be mined from Bluebird. Ore mined from the Bluebird open pit for the period 1 July to 15 August inclusive was 163,590 tonnes at 1.32g/t for 6,963oz. Ore mined was 28% below budget and grade 10% lower than budget. Consequently the contained gold mined during the period 1 July to 15 August totalled 6,963 oz, 36% lower than the 10,862 oz budgeted.

					1 July to 15 August 2013
		Dec Qtr 2012	Mar Qtr 2013	June Qtr 2013
Meekatharra	Units
Total Material Movement	BCM	1,347,045	1,833,410	1,380,020	622,636
Total ore tonnes mined	tonnes	38,787	314,184	317,781	163,590
	g/t	1.32	0.91	1.17	1.32
Mined grade
Total contained gold in ore	oz	1,642	9,211	12,004	6,963

Tabe 1 Meekatharra Gold Operation mine production statistics.

Processing

Ore processed through the Bluebird processing facility for the period 1 July to 15 August inclusive was 173,014 tonnes containing 6,953 ounces and recovering 6,593 ounces at 94.8% recovery. The combination of 3% more tonnes processed at a head grade 15% lower than budget resulted in gold production being 12% less than the planned 7,506 ounces.

					1 July to-15 August 2013
		Dec Qtr 2012	Mar Qtr 2013	June Qtr 2013
Bluebird Mill	Units
Ore tonnes milled					173,014
	tonnes	39,033	342,233	404,282
					1.25
Head grade	g/t	0.74	0.90	1.03
Contained gold in ore					6,953
	oz	929	9,914	13,432
					94.82
Recovery	%	72.2	92.0	96.2
					6,593
Gold produced	oz	668	9,123	12,918

Table 2 Meekatharra Gold Operation Bluebird mill production statistics.

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MT MARION LITHIUM PROJECT

(Reed 70%, Mineral Resources Limited 30%)

During the quarter Reed Industrial Minerals Pty Ltd ( RIM ) continued to advance the Mt Marion Lithium Project ( Mt Marion ) with a metallurgical test work program at SGS Perth. RIM is owned 70:30 by Reed Resources Ltd and leading mining services provider Mineral Resources Limited ( MRL ). MRL fund and operate the project through their subsidiary, Process Minerals International Pty Ltd.

RIM is completing a “proof of technology” test work program to produce the high-purity lithium battery feed-stocks, Lithium Hydroxide, on a continuous scale with RIM’s proprietary process flow sheet using spodumene concentrates from Mt Marion. The test work program is expected to be complete in November 2013 at which time a decision to complete the Engineering Cost Study will be considered. Results to date are encouraging with the production of 99.9% LiCl from Mt Marion spodumene, with a final stage of electrolysis in a chlor-alkali cell remaining outstanding. Australian and International Patent applications have been lodged.

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Figure 1 Simplified process flowsheet comparison

Several leading commodity researchers have forecast an extraordinary increase in the consumption of high-purity, battery-grade lithium hydroxide and carbonate, underpinned by growth in rechargeable batteries. The current median prices for battery-grade lithium hydroxide and lithium carbonate is US$7,500 and US$7,100 per tonne on a CIF basis to US or Europe (source: Industrial Minerals 17 October 2013).

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Figure 2 Lithium Hydroxide Price and Forecast, Lithium chemicals demand and forecast

Reed is working with MRL in preparing RIM to become an independently financed, advanced minerals company focussed on becoming an integrated lithium producer. Strategic discussions continue with third parties in relation to various transaction structures. Discussions remain preliminary and there can be no assurance that a binding proposal will emerge. Reed and MRL will keep the market informed as matters develop further.

BARRAMBIE FE-TI-V PROJECT

(Reed 100%)

During the Quarter the Company reported an updated Mineral Resource estimate for its Barrambie deposit adopting a titanium based cut-off grade. This reflects a change in process route to primarily recover titanium rather than vanadium which previous reports were based on. Laboratory scale test work using a proprietary flow sheet has produced 99.9% TiO2 direct from Barrambie ore at recoveries in excess of 90%.

The Barrambie deposit contains total Indicated and Inferred Mineral Resources of 47.2Mt at 22.2% TiO2, 0.63%V2O5, and 46.7% Fe2O3, at a cut-off grade of 15% TiO2, making it the world’s second highest grade hard-rock titanium deposit (Figure 3).

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Table 3 Barrambie Resource Table for 15% TiO2 cut-off

Category (JORC, 2004)	Tonnage (Mt)	TiO2 (%)	V2O5 (%)	Fe2O3 (%)	Al2O3 (%)	SiO2 (%)
Indicated	34.7	22.25	0.64	46.77	9.48	14.95
Inferred	12.5	21.99	0.58	46.51	9.32	15.40
Total	47.2	22.18	0.63	46.70	9.44	15.07

All tonnage and grade figures have been rounded down to two or three significant figures, respectively; slight errors may occur due to rounding of values.

The Resource has been modelled to the limit of drilling of approximately 60 metres below surface, and remains open at depth and along strike. The depth limit of 60 metres has been applied as this is the planned depth for initial open pit mining of the deposit.

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Figure 3 Global titanium project benchmarking (Source: Intierra August 2013)

Subsequent to the end of the Quarter the Company engaged Snowden Mining Industry Consultants to complete scoping study on the Barrambie Titanium Project. The purpose of the Scoping Study is to assess the potential viability of the development of a hard rock titanium mining and processing operation against a set of key commercial parameters. The study is expected to be complete in November 2013. The Company is currently negotiating a technology transfer agreement for the proprietary process flowsheet.

A continuous scale mini-plant evaluation of a proprietary hydrometallurgical technology to produce high-purity titanium is planned to commence this quarter subject to the results of scoping study, receipt of technology licence and funding availability.

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COMET VALE GOLD PROJECT

(Reed 100%)

The Sand Queen mine remains on care and maintenance. A sale process for the Comet Vale project is continuing.

MT FINNERTY PROJECT

The Mt Finnerty Project located about 65km east of Koolyanobbing is currently being explored for iron ore and nickel mineralisation in its own right.

Iron Ore

No significant activity occurred during this quarter. Subsequent to the end of the quarter the Company announced the resumption of 100% of the iron rights at its Mt Finnerty Project following the amicable termination of the “Mt Finnerty Iron Ore Joint Venture” with Cliffs Asia Pacific Iron Ore Pty Ltd (“Cliffs”). Reed is reviewing the structure of its planned divestment of wholly owned subsidiary Mount Finnerty Pty Ltd (“MFPL”) which holds the tenements.

All prospective mining leases and exploration licences are granted and endorsed for iron ore under section 111 of the Mining Act. The Project has the benefit of extensive infrastructure, the PerthKalgoorlie Railway transects the tenure which links it to two government-owned bulk export ports.

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Figure 4 Plan of Mt Finnerty Iron Ore Project tenure

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Nickel (Barranco 100%, Reed option to acquire 100%)

Exploration during the September Quarter was primarily focused on the interpretation of the analytical data from three diamond holes drilled in the June Quarter, as well as petrographic identification of alteration mineralogy.

Results indicate significant enrichment in the chalcophile elements, Cu, Ni, Ag, Au & Pd. The best intersection is 12.8% Cu – 0.41% Ni – 59 g/t Ag & 379 ppb Pd in 9cm from 128m down hole in GDD005. Petrographic identification included violarite (high grade nickel sulphides) – chalcopyrite – trace sphalerite – trace molybdenite – trace electrum (Au-Ag alloy).

Table 4 Drill intercept (see notes to accompany in Appendix A)

Hole	MGA	MGA	From	To	Interval	Ni	Cu	Co	Au	Ag	Pd	Pt
No.	Northing	Easting	(m)	(m)	(m)	(%)	(%)	(ppm)	(ppm)	(ppm)	(ppb)	(ppb)
GDD005	6608100	218625	127.89	127.98	0.09	0.41	12.82	809	2.24	59	379	4

Whilst the intercepts are not economically significant in isolation they are geologically significant in providing evidence of multiple sulphide mineralising events, with the metals interpreted to be hydrothermally remobilised into a shear zone(s) that have intersected disseminated and massive nickel sulphides at depth, as illustrated in the conceptual geological model (Figure 5). A detailed structural geology review is planned ahead of a high powered Squid EM survey.

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Figure 5 Conceptual geological model

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ROYALTY INTERESTS

During the Quarter the Company disposed of its 1% Net Smelter Royalty on all zinc extracted and recovered from M26/0490 and M26/0598, containing the Nimbus Silver-Gold-Zinc mine, to tenement owner Macphersons Resources Ltd (“MRP”). Consideration received was 891,810 shares in MRP with a nominal consideration value of $200,000.

ENDS

COMPETENT PERSONS STATEMENT

Meekatharra

Geological aspects of this report have been compiled by Mr Craig Fawcett (MAusIMM) whilst in the employ of Reed Resources Ltd. Mr Fawcett has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which is being reported on to qualify as a Competent Person as defined in the Code for Reporting of Mineral Resources and Ore Reserves (2004). Mr Fawcett consents to the inclusion in this report of the matters in the form and context in which they appear.

Barrambie

Information in this report that relates to Mineral Resources is based on information compiled by Mr Andrew Ross, a Fellow of the Australasian Institute of Mining and Metallurgy (AusIMM)), and Dr Bryan Smith a member of the Australian Institute of Geosciences (AIG).

Mr Andrew Ross, Senior Principal Consultant, is employed by Snowden and compiled the resource estimate report. Mr Ross has sufficient experience 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 2004 Edition of the “Australasian Code for Reporting of Exploration Results Mineral Resources and Ore Reserves”. Mr Ross consents to the inclusion in this report of the matters based on his information in the form and context in which it appears.

Dr Bryan Smith (Bryan Smith Geosciences), is employed as a consultant geologist by Reed Resources Ltd, has compiled and provided drilling results and geological interpretations for Mineral Resource estimates. Dr Smith has sufficient experience 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 2004 Edition of the “Australasian Code for Reporting of Exploration Results Mineral Resources and Ore Reserves”. Dr Smith consents to the inclusion in this report of the matters based on his information in the form and context in which it appears.

Mt Finnerty

Geological aspects of this report have been compiled by Mr Gordon Kelly (MAIG), a full time employee of Reed Resources Ltd. Mr Kelly has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which is being reported on to qualify as a Competent Person as defined in the Code for Reporting of Mineral Resources and Ore Reserves (2004). Mr Kelly consents to the inclusion in this report of the matters in the form and context in which they appear.

Although Reed remains optimistic about the potential of the Mt Finnerty project, any reference to the terms “ore” and “high-grade” in this report is conceptual in nature. Use of the term “grade(s)” is not intended to represent the grade of a Reserve.

APPENDIX A: NOTES TO ACCOMPANY TABLE 4

1. GDD005 was drilled vertically to EOH 363.10m.

2. All depths and intercept lengths are down-hole distances and are not intended to represent the true width of the intersection.

3. Geological logging and sampling intervals were completed by G. Kelly, who has almost 45 years expertise in pure nickel sulphide exploration.

4. Samples were derived from quarter-cored NQ2 core, pulverised and analysed at Intertek-Genalysis laboratories, Maddington WA.

5. Sample digest is by a standard mixed acid digest, then by ICPMS or ICPOES determination for all base metals, reported in ppm.

6. Sample digestion for low level gold, palladium and platinum is by fire assay concentration of 25g subsample, then by mixed acid digest and determination by ICPMS finish, reported in ppb.

7. Sample QA/QC at this stage is by internal laboratory standard.

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