NEOMETALS LTD — Interim / Quarterly Report 2016

Oct 28, 2015

ASX Release

29 October 2015

QUARTERLY ACTIVITIES REPORT For the quarter ended 30 September 2015

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Highlights:

Mt Marion Lithium Project

• Construction of Mt Marion Lithium concentrate operation commences following positive Final Investment Decision and financial completion of Offtake and Equity Investment by Jiangxi Ganfeng Lithium Co. Ltd, China’s second largest lithium producer.

Neometals received US$19.75M, with Mt Marion project equity decreasing to 45%.

• First production of lithium concentrate expected mid-2016.

• Project development including Mine-to-Port solution fully funded by Mineral Resources Ltd on a Build-Own-Operate basis.

• New Mineral Resource Estimate increases contained lithium by 60%.

Barrambie Titanium Project

• Pre-feasibility Study confirms technical feasibility and financial viability of a licenced proprietary process to produce +99% pure titanium dioxide (TiO2).

• Potential lowest quartile operating cost per tonne of pure TiO2 produced after by-product credits. Pre-tax NPV12% US$355 million.

Corporate

• Cash and restricted access term deposits $34 million.

• Ongoing evaluation of opportunities to divestment nickel portfolio.

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PROJECT LOCATIONS

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MT MARION LITHIUM PROJECT

(Neometals 45%, Mineral Resources Limited 30%, Jiangxi Ganfeng Lithium Co., Ltd 25%)

During the quarter, the Company and Mineral Resources Limited (ASX: MIN) (“MIN” – via its wholly owned subsidiary, Process Minerals International Pty Ltd) announced the start of the construction phase of the Mt Marion Lithium Project following the Final Investment Decision.

Mt Marion is a globally significant lithium deposit, containing total Indicated and Inferred Mineral Resources of 23.24Mt at 1.39% Li2O and 1.43% Fe2O3, at a cut-off grade of 0% Li2O (Appendix B). The project has a granted Mining Proposal and received its Works Approval for plant construction, on the 18[th] of December 2014.

First production is expected by mid-2016 from the Project, which is designed to produce more than 200,000tpa of chemical grade spodumene concentrate.

Project Offtake and Equity Investment

On 28 September the Company announced financial completion of the Share Sale, Subscription and Option Agreement, and life-of-mine Offtake Agreement with Jiangxi Ganfeng Lithium Co., Ltd (“Ganfeng”).

Neometals received a net amount of US$19.75 million from Ganfeng in respect to the equity investment in RIM.

A Mining Services Agreement with MIN for the construction and operation of the Project on a BuildOwn-Operate basis.

A summary of the key terms of the agreements are set out on the next page.

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Figure 1. Project layout

Share Sale, Subscription and Option Agreement

Following financial close, the shareholdings in RIM are as follows:

� Neometals – 45% � PMI – 30% � Ganfeng – 25%

Neometals has also granted PMI and Ganfeng options pursuant to which they can elect to increase their respective shareholdings in RIM by around Q4 of 2016 by acquiring shares from Neometals at an agreed price. If these options are fully exercised, Neometals will be left holding 13.8% of RIM and PMI and Ganfeng will each hold 43.1%.

Offtake Agreement

Ganfeng will purchase 100% of spodumene production from the Mount Marion Lithium Project for the life of the mine (“LOM”) at market prices on a CIF basis, subject to an agreed floor.

After the first three years of production, MIN/Neometals can exercise options to collectively purchase up to 51% of spodumene production, with Ganfeng purchasing the remaining production.

Mining Services Agreement

MIN (via its wholly owned subsidiary, Process Minerals International Pty Ltd) will build, own and operate the mining, crushing and beneficiation infrastructure and equipment for the Mount Marion Lithium Project.

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New Mineral Resource Estimate

A new Mineral Resource Estimate has increased Indicated and Inferred Mineral Resources to 23.24Mt at 1.39% Li2O and 1.43% Fe2O3, at a cut-off grade of 0% Li2O (Table 1 and Appendix A), compared to 14.8Mt at 1.3% Li2O, at a cut-off grade of 0.3% Li2O previously. This represents a substantial increase in the size of the mineral resource, equating to a 60% increase in the total contained lithium at the Project. The zero cut-off grade reflects the strategy of mining to the lithiumbearing pegmatite contacts. A grade-tonnage curve is included for transparency (Figure 3).

Table 1 Mt Marion Resource Table for 0% Li2O cut-off

Category (JORC, 2012)	Tonnage (Mt)	Li2O (%)	Fe2O3 (%)
Indicated	10.05	1.45	1.33
Inferred	13.19	1.34	1.50
Total	23.24	1.39	1.43

Figure may not sum due to rounding Significant figures do not imply an added level of precision

Separately Snowden estimated an Exploration Target (as defined in Clause 17 of the 2012 edition of the JORC Code) for Mt Marion of approximately 15Mt to 25Mt at an average grade of between 1.3 to 1.4% Li2O. Snowden notes that the potential quantity and grade is conceptual in nature, that there has been insufficient exploration to estimate a Mineral Resource and that it is uncertain if further exploration will result in the determination of a Mineral Resource in these areas.

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Figure 2. Mineral Resource Estimate and Exploration Target outlines over tenure

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Figure 3. Resource Grade - Tonnage Curve at varying cut-off grades (0.0 – 2.0% Li2O)

Downstream Lithium Processing

All downstream lithium processing technology and patents are being transferred to a dedicated vehicle, Reed Advanced Materials Pty Ltd (“RAM”) and are not part of the sale assets in the Ganfeng MoU. RAM is beneficially owned 70:30 by the Company and MRL. A business plan for the commercialisation of RAM’s downstream processing technology is being prepared.

During the quarter RAM continued the prosecution of its patent applications to produce high-purity lithium hydroxide (“LiOH”) directly from spodumene (lithium) concentrates. RAM owns a granted Australian patent within its extensive patent family for lithium hydroxide, with other patents filed or under examination in the US, Argentina, Canada, Chile, China, Japan, Malaysia and South Korea.

Lithium market

One of the world’s leading lithium producers has announced that effective 1 October 2015 its lithium compound prices will be increased by 15%. Market growth is underpinned by the increasing market penetration of renewable energy storage, and electric/ hybrid electric vehicles (EV and HEV) in commercial and private applications.

The current median prices for battery-grade lithium hydroxide and lithium carbonate are US$8,250 and US$6,400 per tonne, respectively, on a CIF basis to Europe and US respectively (source: Industrial Minerals 25 September 2015).

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The price of chemical grade lithium concentrates (6% Li2O) are illustrated in Figure 4 below and gleaned from Official Chinese Import Volumes and Prices and independent marketing consultants.

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Figure 4. Chinese SC6 Grade Spodumene Prices

BARRAMBIE TITANIUM PROJECT

(Neometals 100%)

During the quarter the Company announced the results of its Pre-feasibility study (“PFS”) to assess the development of an open-pit mining and processing operation using a licensed proprietary technology to produce high purity titanium, vanadium and iron compounds.

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).

Pre-feasibility Study

The economic assessment was carried out by Snowden, and based on Capital and Operating costs developed by Sedgman Limited, indicates the potential for a viable hard-rock titanium mining and processing operation.

The PFS has highlighted the potential for the Barrambie Project to be a low cost producer of titanium dioxide (TiO2), vanadium pentoxide (V2O5) and iron oxide (Fe2O3), over a mine life of 19.6 years.

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Full details of the Pre-Feasibility Study are attached, with key highlights summarised in the table below:

Pre-feasibility Study Highlights	Pre-feasibility Study Highlights
Average Annual Production	98,000t TiO2 2,000t V2O5 234,000t Fe2O3
Life of Mine (LOM)	19.6 years
Life of Mine (LOM) Revenue	A$ 8,746 million
Pre-tax Net Cashflow	A$ 2,409 million
Pre-tax NPV (12% discount rate)	A$ 355 million
Pre-tax Internal Rate of Return	21%
Cash Operating Cost per tonne ofpaid TiO2net of co-product credit	US$ 5721
Pre-production Capital cost (excluding EPCM and Contingency)	A$ 549 million1
Payback of capital costs	3.9 years

Operating and Capital costs are both valid as at July 2015 with an indicative accuracy of ±25%. All analysis is in Australian dollars and assumes conservative, real long-term prices of US$1,838/t for titanium dioxide, US$14,873 /t for vanadium pentoxide, US$520/t for synthetic iron oxide pigment and an AUD exchange rate of US$0.75.

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Figure 5. All-in-Sustaining Cost waterfall based on PFS

1 Estimated to accuracy of ±25%

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Figure 6. Relative Standard-Plant Cash Operating Costs with PFS

CAUTIONARY STATEMENT

The Pre-Feasibility Study referred to in this report is based on medium level technical and economic assessments, it is sufficient to support reporting of Ore Reserves using the JORC Code but not sufficient to prove definitive assurance of an economic development case or to provide certainty that the conclusions of the Pre-Feasibility Study will be realised.

PROJECT DEVELOPMENT AND CORPORATE STRATEGY

Following the robust Pre-Feasibility Study results, Sedgman support the project progressing to a full Feasibility Study to assess the many opportunities which have been identified to improve the economics of the project via optimisation of the flow sheet.

As a next step, Neometals plan to undertake full pilot plant evaluation of the proprietary hydrometallurgical technology, with this work planned in the current financial year. Subject to the success of the full pilot scale test work it is Neometals’ intention to proceed to Feasibility Study (FS).

The currently preferred project development strategy is to advance the project to a suitable stage of evaluation to obtain a titanium industry partner who would fund and operate the development of the Barrambie project on a shared equity or joint-venture basis.

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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$2,750 per tonne on a CIF basis to USA (source: Industrial Minerals 25 September 2015).

FORRESTANIA NICKEL PROJECT

(Neometals 80%, Hannans Reward 20% free carried to DTM)

During the quarter, the Company acquired the extensive database on the project area from Hannans Reward Ltd (ASX:HNR) in consideration for a free-carried 20% interest in the project up to a decision to mine (“DTM”), if HNR does not elect to participate it will water down to a 2% net smelter royalty.

MT FINNERTY PROJECT

Green Dam Prospect (Barranco 100%, Neometals option to acquire 100%)

No activity undertaken in the quarter. The Company allowed its option agreement to expire.

NON-CORE ASSET DIVESTMENT PROGRAM

With Neometals focus being on the Mt Marion Lithium and Barrambie Titanium Projects, the Company has committed to divesting non-core assets from its portfolio. In line with this strategy the Company has commissioned a third party review by PCF Capital Ltd in relation to it options to realise value from its nickel portfolio.

CORPORATE

Finances (unaudited)

Cash and term deposits on hand as of 30 September 2015 totalled $34.0 million, including $5.1 million in restricted use term deposits supporting performance bonds and other contractual obligations.

Issued Capital

On 13 July 2015 the Company issued 6,827,226 ordinary shares to a director and employee following vesting of performance rights pursuant to the Company’s Performance Rights Plan.

The total number of shares on issue at 30 September 2015 was 509,039,983.

ENDS

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APPENDIX A: TENEMENT INTERESTS

As at 30 September 2015 the Company has an interest in the following projects and tenements in Western Australia.

PROJECT NAME	LICENCE NAME	BENEFICIAL INTEREST	STATUS
Barrambie	E57/769	100%	Live
Barrambie	E57/770	100%	Live
Barrambie	E57/1041	100%	Pending
Barrambie	E58/471	100%	Pending
Barrambie	L57/30	100%	Live
Barrambie	L20/55	100%	Live
Barrambie	M57/173	100%	Live
Mount Marion	E15/1190	45% (*)	Live
Mount Marion	L15/315	45% (*)	Live
Mount Marion	L15/316	45% (*)	Live
Mount Marion	L15/317	45% (*)	Live
Mount Marion	L15/321	45% (*)	Live
Mount Marion	L15/0220	45% (*)	Live
Mount Marion	M15/999	45% (*)	Live
Mount Marion	M15/1000	45% (*)	Live
Mount Marion	M15/717	45% (*)	Live
Mount Marion	E15/1478	45% (*)	Pending
Mount Marion	L15/353	45% (*)	Pending

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Pilgangoora	P45/3003	70% (**)	Pending
Mount Finnerty	E15/1416	100%	Live
Mount Finnerty	E15/1430	100%	Live
Mount Finnerty	E16/341	100%	Live
Mount Finnerty	M15/978	100%	Live
Lake Johnston	E63/1365	80%	Live
Forrestania	E77/2207	80%	Live
Forrestania	E77/2219	80%	Live
Forrestania	E77/2220	80%	Live
Forrestania	E77/2239	80%	Live
Forrestania	E77/2303	80%	Pending
Forrestania	P77/4290	80% (***)	Pending
Forrestania	P77/4291	80% (***)	Pending

• • registered holder is Reed Industrial Minerals Pty Ltd (Neometals Ltd 45%, Mineral Resources Ltd 30%, Jiangxi Ganfeng Lithium Co.,Ltd 25%).

** - registered holder is Reed Advanced Materials Pty Ltd (Neometals Ltd 70%, Mineral Resources Ltd 30%).

*** Non-gold rights only.

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Changes in interests in mining tenements

Interests in mining tenements acquired or increased

PROJECT NAME	LICENCE NAME	ACQUIRED OR INCREASED
Mount Marion Mount Marion Pilgangoora Barrambie	E15/1478 L15/353 P45/3003 E57/1041	Applied for 14 August 2015 Applied for 4 September 2015 Applied for 24 September 2015 Applied for 29 September 2015

Interests in mining tenements relinquished, reduced or lapsed

PROJECT NAME	LICENCE NAME	RELINQUISHED, REDUCED OR LAPSED
Forrestania Mount Finnerty Mount Finnerty Mount Finnerty	E77/2207 E77/2219 E77/2220 E77/2239 E77/2303 E16/305 E16/330 E15/1408	Consideration for Mining Information acquisition - Hannans Reward Ltd free carry 20% to DTM “ “ “ “ Neometals Ltd option to purchase expired in July 2015 “ Surrendered 24 September 2015

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APPENDIX B: MINERAL RESOURCE ESTIMATES

Mt Marion Resource Table for 0% Li2O cut-off

Category (JORC, 2012)	Tonnage (Mt)	Li2O (%)	Fe2O3 (%)
Indicated	100.5	1.45	1.33
Inferred	13.19	1.34	1.5
Total	23.24	1.39	1.43

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.

Barrambie Mineral Resource Estimate for 15% TiO2 cut-off

Category (JORC, 2012)	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.

Compliance Statement

The information in this report that relates to Mineral Resource Estimates at the Mt Marion Lithium Project and Barrambie Titanium Project are extracted from the ASX Announcements entitled “ Mt Marion – New Mineral Resource Estimate and Exploration Target” lodged 21 September 2015 , and “Barrambie - Amended JORC 2012 Mineral Resource Estimate” lodged 6 December 2013. The Company confirms that it is not aware of any new information or data that materially affects the information included on the original market announcement and that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified form the original market announcement.

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