NEOMETALS LTD - Interim / Quarterly Report 2014

Level 1, 672 Murray St West Perth WA 6005

ABN 89 099 116 631

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ASX Release 24 July 2014

Locked Bag 8 West Perth WA 6872 Tel: +61 8 9322 1182 Fax: +61 8 9321 0556

QUARTERLY ACTIVITIES REPORT For the quarter ended 30 June 2014

Highlights:

Mt Marion Lithium Project

Continuous production of lithium hydroxide from semi‐pilot plant in USA.
Final product grade is better than published battery‐grade lithium hydroxide specifications from existing leading suppliers.
Results confirm potential to deliver lowest‐quartile operating costs as indicated in the Pre‐ feasibility Study 2012.
Engineering Cost Study and Downstream partner selection process planned to commence in September Q 2014.

Barrambie Titanium Project

Commenced mini‐plant in Canada for continuous production of titanium dioxide using licenced proprietary hydrometallurgical process.
Test work to be completed in August 2014.
Pre‐feasibility Study planned to commence in September Q 2014.

Mt Finnerty Project

Sale process for Iron and Gold rights continues.

Lake Johnston Project

Acquires 80% interest in new tenement with historic nickel sulphide intersection.

Comet Vale Project

Completed sale agreement, $1.81M received.

Meekatharra Gold Project

Sale of Meekatharra Gold Project assets to Metals X Ltd approved by creditors
DOCA approved by creditors, Reed received $4.56M and subject to shareholder approval will buy‐back 24M shares held by Metals X Ltd for $1 and cancel them.

Corporate

Cash and restricted access term deposits $13.2 million.

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PROJECT LOCATIONS

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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 the successful production of lithium hydroxide (LiOH) from a semi‐ pilot plant in the USA. 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.

The semi‐pilot plant was commissioned in March 2014 and the test work demonstrates the successful scale up RIM’s proprietary hydrometallurgical flowsheet including the purification and electrolysis of lithium chloride solutions, which can be obtained from either mineral or brine feedstocks. Reproducibility of the electrolysis process, and the suitability and durability of the ion exchange membrane have been confirmed as suitable for commercial operation. The electrolysis process is similar to the Chlor‐Alkali process used to produce caustic soda (sodium hydroxide) and hydrochloric acid (Figure 1).

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Figure 1 Simplified process flowsheet comparison

Advantages of the RIM process include:

ability to utilise existing Chlor‐alkali and new Chlor‐Alkali package‐plants to produce LiOH,
high current efficiency in electrolysis that has the potential to deliver competitive unit production costs, and
very low impurity levels in final product without additional purification phases.

The results to date are particularly encouraging with the purification of lithium chloride exceeding expectations and efficiency across the electrolysis membrane exceeding assumptions in the Pre‐ feasibility Study (PFS).

COMPARISON OF BATTERY GRADE SPECIFICATIONS WITH LEADING LITHIUM HYDROXIDE MONOHYDRATE PRODUCER FMC LITHIUM	COMPARISON OF BATTERY GRADE SPECIFICATIONS WITH LEADING LITHIUM HYDROXIDE MONOHYDRATE PRODUCER FMC LITHIUM	COMPARISON OF BATTERY GRADE SPECIFICATIONS WITH LEADING LITHIUM HYDROXIDE MONOHYDRATE PRODUCER FMC LITHIUM
Items	FMC	RIM Results
LiOH.H2O % Min	56.5	56.5
Feppm	≤5	0.1
Nappm	≤20	0.6
Kppm	≤10	1.3
Clppm	≤20	20
Cappm	≤15	0.6
Alppm	≤10	3
Nippm	≤10	0.2
Sippm	≤30	3.3

Source: http://www.fmclithium.com/Portals/FMCLithium/content/docs/DataSheet/QS‐PDS‐1021%20r1.pdf

Project Development and Corporate Strategy

Subject to RIM board approval, an Engineering Cost Study to develop capital and operational costs is the next stage in the development of the project.

The RIM lithium hydroxide production process is a wholly owned technology of RIM. An International patent application (PCT) has received a positive Preliminary Report on Patentability and national phase patent applications have been filed in Australia, Canada, Chile, China, Malaysia and the USA.

Reed and MRL are working to develop RIM into an independently financed, advanced minerals company that will be an integrated lithium compound producer and supplier to the Lithium‐ion battery industry. Strategic discussions are in progress with third parties, including existing Chlor‐ alkali producers, with the aim of developing an appropriate business structure for the commercialisation of the RIM process technology. 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.

Lithium market

The prominent, respected lithium industry researchers forecast a large and sustained increase in the demand for high‐purity, battery‐grade lithium hydroxide and carbonate at compound rates of approximately 20% pa. The growth is underpinned by continuing use of rechargeable batteries in consumer electronics and increased market penetration of battery electric and hybrid electric vehicles (BEV and HEV) in commercial and private applications. The current median prices for battery‐grade lithium hydroxide and lithium carbonate are US$7,500 and US$6,400 per tonne, respectively, on a CIF basis to Europe and US respectively (source: Industrial Minerals 17 July 2014).

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BARRAMBIE TITANIUM PROJECT

(Reed 100%)

During the quarter the Company continued to advance its Barrambie Titanium Project with the commencement of a mini‐pilot plant in Canada to demonstrate the scale up from laboratory‐scale batch testing to continuous operation of a proprietary process flowsheet.

Barrambie is one of the world’s highest grade titanium deposits, containing 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 (Appendix B).

The plant will test a proprietary chloride‐based process for the recovery of titanium as titanium dioxide (TiO2), vanadium pentoxide (V2O5) and iron as hematite (Fe2O3) from run of mine ore at a feed rate of 10 kilograms per day and be completed in July 2014. Sufficient information will be generated to allow for a rigorous process model to be compiled, which will enable both capital and operating costs to be estimated at a Pre‐feasibility Study (PFS) level.

The process, pioneered in Canada, has produced high purity (>99%) titanium dioxide from Barrambie oxide ores and concentrates at high recoveries. The Company licenced the patented process to extract all valuable metals from its Barrambie deposit in December 2013.

A Scoping Study by Snowden Mining Industry Consultants in October 2013, based on this process, indicated the potential for a viable hard‐rock titanium and vanadium mining and processing operation and recommends progression to a Pre‐Feasibility Study. Average net operating costs per tonne of titanium dioxide recovered were estimated at A$1,214/t with an indicative accuracy of ±35%. The long term price assumption used in the study was US$3,000/t.

CAUTIONARY STATEMENT

The Scoping Study referred to in this report is based on low‐level technical and economic assessments, and is insufficient to support reporting of Ore Reserves using recognised codes or guidelines or to provide definitive assurance of an economic development case, or to provide certainty that the conclusions of the Scoping Study will be realised.

Project Development and Corporate Strategy

Subject to the success of the mini‐pilot scale test work it is Reed’s intention to proceed with a Pre‐ feasibility Study (PFS) as recommended by Snowden. The Company is working with its preferred engineering firm to finalise the proposed work plan to the end of the Pre‐Feasibility Study, which will be funded internally and completed by the end of the December 2014.

The Scoping Study has identified many opportunities to further improve the economics by optimising factors such as using higher‐grade concentrates as feed, increasing plant throughput rate, co‐generation of electricity to reduce operating costs and the recovery and marketing of pure iron and aluminium oxide products.

The currently preferred project development strategy is to advance the project to a suitable stage of evaluation to attract a joint venture partner to fund and operate the development of the Barrambie project.

Titanium and Vanadium market

The majority of titanium feedstocks (US$17 Billion or 85% by value) are used to produce titanium dioxide pigment which is then used as an additive in paints, plastics, paper and ink with the balance (15%) used to produce titanium metal products.

The current median price for high quality titanium dioxide pigment is US$3,380 per tonne on a CIF basis to USA (source: Industrial Minerals 17 July 2014).

Approximately 85‐90% of global vanadium production is consumed in the steel industry. Other uses include vanadium‐containing titanium alloys, accounting for 5‐10% of demand, and various chemical and battery applications, which make up around 1‐3% of demand.

The current median price for vanadium pentoxide is US$14,500 per tonne on a FOB basis to Rotterdam (source: Metal Prices 22 March 2014). The Company is party to a Sales and Marketing Agreement with a leading global commodity trader, dominant in the vanadium market, for the first ten years of production from Barrambie.

MT FINNERTY PROJECT

(Reed 100%)

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

During the quarter a short program of RC drilling was completed on one of more than twenty targets, which demonstrated the exploration potential to several interested parties.

PCF Capital Pty Ltd is continuing a sale process for wholly owned subsidiary Mount Finnerty Pty Ltd (“MFPL”) which holds the tenements and iron rights, as part of its continuing asset realisation program. Indicative bids were received and discussions remain preliminary and there can be no assurance that a binding proposal will emerge. Reed will keep the market informed as matters develop further.

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

During the quarter a Downhole EM survey of two diamond drill holes (GDD007 and 008) drilled in April failed to locate any off hole conductors.

GDD007 drill hole penetrated the position of surface EM plate (MF02) and the basal contact but did not return any massive nickel sulphides. It did, however, intersect stringer sulphides over a wide interval back up the hole, associated with talc‐carbonate alteration and mafic dyke intrusion. Petrography trace amounts of pentlandite were present.

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Figure 2. Nickel Targets on Interpreted Geology Figure 3. Nickel Targets on RTP Magnetics

PROJECT ACQUISITIONS

LAKE JOHNSTON NICKEL PROJECT (Reed 80%)

Reed has acquired interests in several tenements with demonstrated nickel prospectivity in the Yilgarn region to build a significant nickel exploration package, at no material up‐front cost. Reed’s aim is to add value to its nickel portfolio through exploration success and for it to become independently financed as it progresses its Mt Marion Lithium and Barrambie Titanium projects.

During the quarter Reed entered into an agreement with Hannans Reward Ltd (ASX:HNR)(“Hannans”) to acquire 80% interest in E63/1365 in return for sole funding exploration up to a decision to mine. In 2012 Hannans intersected nickel sulphide mineralisation in a single reverse circulation drill hole (MGRC059) testing a coincident geochemical/magnetic anomaly at Mt Gordon (please refer to Hannans announcement 30 August 2012).