NEOMETALS LTD — Interim / Quarterly Report 2016

Oct 30, 2016

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ASX Release 31 October 2016

Level 1, 672 Murray Street West Perth WA 6005 Locked Bag 8 West Perth WA 6872 t. +61 8 9322 1182 f. +61 8 9321 0556 info@neometals.com.au neometals.com.au Neometals Ltd ABN 89 099 116 631

QUARTERLY ACTIVITIES REPORT For the quarter ended 30 September 2016

Highlights:

Mt Marion Lithium Project

• First ore through concentrator on 28[th] September

• Project remains on schedule

• Resource increased to 77.8 Mt at 1.37% Li2O in updated Resource Estimate with higher cut-off grade

Lithium Hydroxide Project

• ELi Feasibility Study confirmed technical and economic feasibility with pre-tax NPV US$481M and 51% IRR for 20,000tpa LCE Lithium Hydroxide plant in Malaysia

• ELi scheduled for further testing prior to commercialisation

• Signs MOU with Mineral Resources to study feasibility of producing 20,000tpa LCE hydroxide in Eastern Goldfields of WA to reduce logistic costs

Barrambie Titanium Project

• Titanium Pigment Qualification test work and Partner Selection Process to commence in Dec Q

Neomet Process Commercialisation with Sedgman

• Leased laboratory facility recommissioned for third party testing

Forrestania Nickel Project

• Completion of sale of Reed Exploration Pty Ltd to Hannans Ltd

Corporate

• Cash and restricted access term deposits $65.75 million

• Listed securities $11.6 million

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PROJECT LOCATIONS

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MT MARION LITHIUM PROJECT (Neometals Ltd 13.8%, Mineral Resources Limited 43.1%, Ganfeng Lithium Co., Ltd 43.1% through Reed Industrial Minerals Pty Ltd (RIM))

The Project Operator, Mineral Resources Limited (ASX:MIN) (“MIN” – via its wholly owned subsidiary, Process Minerals International Pty Ltd) continued the construction phase of the Mt Marion Lithium Project and moved into commissioning phase for the crushing and beneficiation circuits. The ROM and Crushed Ore stockpiles were established following the commissioning of the relevant sections of plant (Image 1). Construction of the Beneficiation Plant was completed (Image 2) before dry and wet commissioning activities were performed on the Beneficiation Plant. Ore was fed into the Beneficiation plant on 28[th] September.

Project development activities are well advanced at the Mount Marion Project and progressing according to plan (Figure 1). The approximate site layout is depicted in Figure 2.

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Image 1. 3-Stage Crushing Plant and Crushed Ore Stockpile after commissioning

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Image 2. Beneficiation Plant under construction prior to commissioning

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Figure 1. Project Milestones

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Figure 2. Project layout

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Resource Extension and In-fill drilling

In late 2015, the shareholders of RIM approved an exploration drilling program to extend the Mt Marion lithium resource. During the Quarter, an updated Resource Estimate was published on 5 July 2016 and reported in the previous Quarterly Activities report. Further drilling and analysis of results followed the July estimate which has been superseded by a further update in the month following the end of the Quarter (ASX announcement 27 October 2016). The drill program undertaken from July 2016 through September 2016 comprised 18,915m over 105 holes bringing total drilling for the resource to 83,819m over 931 holes.

Mt Marion’s total Indicated and Inferred Mineral Resources were boosted by 160% with the Mineral Resource Estimate published on 5 July 2016. The new Indicated and Inferred Mineral Resources boost the 5 July 2016 estimate by a further 28% (Table 1 and 2).

The results of the 2016 drilling program have increased the Mineral Resource Estimate to Indicated and Inferred Mineral Resources of 77.8 Mt at 1.37% Li2O and 1.09% Fe, at a cut-off grade of 0.5% Li2O.A cut-off grade of 0.3% Li2O was used in July and a cut-off grade of 0% was used in earlier estimates. The Mineral Resource Estimate and Exploration Target is represented in Figure 3.

Table 1. Mt Marion Total Resource Table showing change from July 2016

Category (JORC, 2012)	Unit	5 July 2016£	27 October 2016¥	Change, %
Total	Mt	60.5	77.8	+28.6%
	Li2O,%	1.36	1.37
	Fe,%	1.09	1.09
Contained Li2O	kt	823	1,066	+29.5%

Table 2 Mt Marion Resource Table for 0.5% Li2O cut-off

Category (JORC, 2012)	Unit	5 July 2016£	27 October 2016¥	Change, %
Indicated*	Mt	26.4	28.9	+9.5%
	Li2O,%	1.33	1.35
	Fe,%	1.09	1.06
Inferred*	Mt	34.1	48.9	+43.4%
	Li2O,%	1.39	1.38
	Fe,%	1.08	1.10

• Reporting category as per JORC, 2012

£ Li2O cut-off grade of 0.3%

¥ Li2O cut-off grade of 0.5%

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

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Figure 3. Mineral Resource Estimate and Exploration Target outlines over tenure

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LITHIUM HYDROXIDE PROJECT

ELi Process, Malaysia

(Neometals 70%, Mineral Resources Limited 30%)

All downstream lithium processing technology and patents are owned by Reed Advanced Materials Pty Ltd (“RAM”). RAM is beneficially owned 70%:30% by the Company and MIN. During the Quarter, the Feasibility Study (“FS”) was completed, using the Engineering Cost Study prepared by a subsidiary of the German-owned EPC contractor M+W Group, M+W Group (Singapore), for the commercialisation of RAM’s ELi downstream processing technology in a 15,000 – 20,000tpa LCE lithium hydroxide plant based in Malaysia.

Feasibility Study

The FS confirmed the technical feasibility and economic viability of the proposed operation to produce 20,000tpa of lithium carbonate equivalent (‘LCE’) as battery quality lithium hydroxide and lithium carbonate by conversion of spodumene concentrates at a proposed plant in Malaysia. The FS incorporates an Engineering Cost Study (‘ECS’) with technical, engineering and economic assessments carried out by to provide capital and operating cost estimates to an accuracy of ±15%.

The key highlights of the FS are summarised in the table below:

Feasibility Study Highlights	Feasibility Study Highlights
Average Annual Production	14,000t LiOH.H2O 5,600t Li2CO3
Life of Plant (LOP)	20 years
Life of Plant Revenue	US$ 4,042 million
Pre-tax Net Cash flow (per annum)	US$ 82.39 million
Pre-tax NPV (12% discount rate)	US$481.7 million
Pre-tax Internal Rate of Return	51%
Cash Operating Cost per tonne of LiOH.H2O	US$ 4,630
Cash Operating Cost per tonne of Li2CO3	US$ 5,345
Pre-production Capital cost (including EPCM and Contingency)	US$ 158 million
Payback of capital costs	2.6 years

Project Development and Corporate strategy

Subsequent to the completion of the FS, the Company has given further detailed consideration to the plan to base operations in Malaysia, to the timetable and the testing requirements for commercialisation of the ELi Process. The ELi Process will undergo appropriate development as advised in previous reports. The required commercialisation schedule might not be compatible with the optimum conditions for market entry of a new source of lithium hydroxide supply. Consequently,

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a modern version of the direct hydroxide sulphate process is favoured for initial production capacity. Potential locations for a sulphate process plant are under consideration in the Eastern Goldfields region of Western Australia with a view to eliminating the substantial bulk overseas shipping overhead costs from the process.

MOU Downstream Process Plant, Western Australia

The Company and MIN entered a Memorandum of Understanding (“MOU”) on 30 September 2016 for the production of lithium hydroxide. Under the plan the partners would use lithium concentrate from their jointly-owned Mt Marion Project to produce a battery quality, lithium hydroxide product suitable for direct sales to the Lithium Ion Battery industry for use in production of battery cathodes. Under the MOU, the JV Partners have agreed to jointly assess the technical and commercial feasibility of the construction and operation of a plant with nameplate capacity of 20,000 – 25,000tpa of lithium carbonate equivalent production, utilising the conventional sulphate/caustic soda process used by leading Chinese lithium converters (including Ganfeng). The proposed process route will eliminate the need for pilot testing as Ganfeng will be processing Mt Marion concentrates at commercial scale from the December Quarter 2016. The commercialisation program of the JV Partners patented ELi process will continue separately from arrangements under this MOU with primary focus on its application to traditional salar brines rather than spodumene/hard rock supply sources. Key activities under the MoU will include:

• Front end engineering and design (FEED)

• Site selection and acquisition

• Negotiation of reagent supplies (gas, sulphuric acid, caustic soda)

• Assessment of environmental and regulatory approvals

Initial work streams under the MOU will commence immediately, with a Final Investment Decision expected by Q3 of 2017.

Lithium market

The current market for battery grade lithium hydroxide and lithium carbonate is in tight supply due to high demand growth and constrained supply resulting from low installed base of production capacity in the high purity product sector. The market demand is forecast to grow significantly for the next 4 years through to 2020 (the timeframe in which Neometals and MIN are aiming to commence production of lithium hydroxide) and to continue thereafter.

The current median prices for battery-grade lithium hydroxide are steady at approx US$9,750 per tonne, on a CIF basis to Europe and US, with anecdotal evidence of prices for small volume transactions in excess of US$15,000 per tonne (source: Industrial Minerals 27 October 2016).

The price of chemical grade lithium concentrates (6% Li2O) are estimated at US$572 per tonne on a CIF basis to China. (source: Ganfeng). Supply of this grade of concentrate is tight due to the marketing policy of the only significant current supplier.

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BARRAMBIE TITANIUM PROJECT (Neometals 100% through Australian Titanium Pty Ltd)

During the Quarter, the Company supervised the refurbishment of the laboratory and pilot test facility in Montreal that will be used for a full pilot study for Barrambie. The laboratory facilities have been returned to operational status, the mini-plant has been refurbished and the upgrade of the pilot facility is in progress. 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).

Project Development and Corporate Strategy

Neometals is engaged in PFS optimisation studies. The full pilot plant evaluation of the proprietary hydrometallurgical technology is planned to commence in the first half of 2017 following mini-pilot plant optimisation testwork which has been board approved. Work commenced during the September Quarter 2016 with the refurbishment of the laboratory and pilot test facility in Montreal. The pilot plant design criteria have been prepared prior to equipment procurement. Subject to the success of the full pilot scale test work it is Neometals’ intention to proceed to Feasibility Study (FS) in 2017.

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.

Titanium market

The majority of titanium feedstocks (an annual market of 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$2,550 per tonne on a CIF basis to USA (source: Industrial Minerals 27 October 2016).

NEOMET PROCESSING TECHNOLOGY (25% Net Profit Interest through Alphamet Management Pty Ltd)

Neometals is responsible for managing the commercialisation and development of the technology (“Neomet Process”). All revenue received from the commercialisation of the technology will be split 25:75 between Neometals and the owners of the technology.

Neometals entered into a Strategic Alliance with Sedgman Limited (a wholly owned subsidiary of CIMIC Group Limited (ASX:CIM) to provide the platform for the commercialisation of the technology, at no up-front cost to Neometals. Neometals has subsequently been working with Sedgman’s project team to market the technology, identify the initial evaluation customers and to ready the laboratory facilities by conducting tests on a range of materials to calibrate the facility in readiness for customer tests. Neometals’ strategy is to develop and hold a portfolio of royalty interests from sub-licencing the technology in addition to deploying the technology for the Barrambie Project.

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Figure 4. Structure of Strategic Alliance with Sedgman Limited.

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Figure 5. Structure of Testing/Evaluation Stages for Third Party testing

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The Company has a long term lease for the commercial laboratory facilities from one of the owners of the technology for use by the Strategic Alliance partners to test third party material. These facilities are referenced in above paragraphs.

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Image 3. Neometals’ Leased Laboratory at 5800 Thimens, Montreal, Canada

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Image 4. Pilot Plant at 5800 Thimens, Montreal, Canada

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Image 5. One of four bench-scale laboratories at 5800 Thimens, Montreal, Canada

FORRESTANIA NICKEL PROJECT (Neometals 80%, Hannans 20% free carried to DTM)

During the quarter, the Company completed the divestment of this project to Hannans Limited (“Hannans”) as outlined below.

CORPORATE

Divestment of Reed Exploration Pty Ltd

On 29 September 2016 the Company completed the transaction with Hannans under which Neometals divested its Forrestania nickel assets via the sale of the Company’s subsidiary company, Reed Exploration Pty Ltd (“REX”). The transaction is consistent with Neometals’ ongoing strategy to divest non-core assets and focus on the development of its lithium and advanced materials business.

As part of the divestment, Neometals now holds 684,583,333 Ordinary fully paid shares (42% of the issued capital) in Hannans on an undiluted basis, and also holds 31,250,000 options (exercisable at 0.4c within 2 years) in Hannans. At 30 September Hannans shares closed at 1.7c.

Hannans has also divested its Swedish projects via an in specie distribution of the shares in its subsidiary company Critical Metals to shareholders. Neometals will assist Scandinavian Co to realise lithium, cobalt and carbon opportunities in Scandinavia through a technical assistance agreement. Neometals will hold 13.5% of Critical Metals once that agreement is finalised.

Finances (unaudited)

Cash and term deposits on hand as of 30 September 2016 totalled A$65.75 million, including $5.1 million in restricted use term deposits supporting performance bonds and other contractual obligations .

Capital Management

On 11 August 2016 the Company formally declared a 2 cent unfranked dividend that was paid to shareholders on 26 August 2016.

The Company has not acquired any shares through the on-market share buy-back (to acquire up to a maximum of 5% of the Company’s current shares) that is currently open or initiated the unmarketable parcel sale facility as previously foreshadowed.

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Issued Capital

On 13 July 2016 the Company issued 3,911,608 shares to an employee following vesting of Performance Rights pursuant to the Neometals Ltd Performance Rights Plan.

The total number of shares on issue at 30 September 2016 was 563,000,865.

ENDS

For further information, please contact:

Chris Reed

Managing Director Neometals Ltd T: +61 8 9322 1182 E: info@neometals.com.au

Media

Michael Weir / Richard Glass Citadel MAGNUS T: +61 8 6160 4900

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 Resource Upgrade” lodged 27 October 2016, 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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As at 30 September 2016 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%	Live
Barrambie	L57/30	100%	Live
Barrambie	L20/55	100%	Live
Barrambie	M57/173	100%	Live
Barrambie	E57/1046	100%	Pending
Mount Marion	L15/315	13.8% (*)	Live
Mount Marion	L15/316	13.8% (*)	Live
Mount Marion	L15/317	13.8% (*)	Live
Mount Marion	L15/321	13.8% (*)	Live
Mount Marion	L15/0220	13.8% (*)	Live
Mount Marion	L15/360	13.8% (*)	Live
Mount Marion	M15/999	13.8% (*)	Live
Mount Marion	M15/1000	13.8% (*)	Live
Mount Marion	M15/717	13.8% (*)	Live
Mount Marion	E15/1496	13.8% (*)	Live
Mount Marion	E15/1504	13.8% (*)	Live
Mount Marion	P15/6050	13.8% (*)	Pending
Mount Marion	P15/6042	13.8% (*)	Pending
Mount Marion	P15/6043	13.8% (*)	Pending
Mount Marion	P15/6044	13.8% (*)	Pending

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Mount Marion	P15/6045	13.8% (*)	Pending
Mount Marion	P15/6046	13.8% (*)	Pending
Mount Marion	P15/6047	13.8% (*)	Pending
Mount Marion	P15/6041	13.8% (*)	Pending
Mount Marion	P15/6049	13.8% (*)	Pending
Mount Marion	L15/0360	13.8% (*)	Pending
Mount Marion	P15/6052	13.8% (*)	Pending
Mount Marion	P15/6053	13.8% (*)	Pending
Mount Marion	P15/6054	13.8% (*)	Pending
Mount Marion	P15/6055	13.8% (*)	Pending
Mount Marion	P15/6056	13.8% (*)	Pending
Mount Marion	P15/6057	13.8% (*)	Pending
Mount Marion	P15/6058	13.8% (*)	Pending
Mount Marion	P15/6048	13.8% (*)	Pending
Pilgangoora	P45/3003	70% (**)	Pending

• • registered holder is Reed Industrial Minerals Pty Ltd (Neometals Ltd 13.8%, Mineral Resources Ltd 43.1%, Ganfeng Lithium Co.,Ltd 43.1%).

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

Changes in interests in mining tenements

Interests in mining tenements acquired or increased

PROJECT NAME	LICENCE NAME	ACQUIRED OR INCREASED
Mount Marion Mount Marion	E15/1496 E15/1504	Granted 27 July 2016 Granted 7 September 2016

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Interests in mining tenements relinquished, reduced or lapsed

PROJECT NAME	LICENCE NAME	RELINQUISHED, REDUCED OR LAPSED
Mount Marion QVR Lake Johnston Forrestania Forrestania Forrestania Forrestania Forrestania Forrestania Forrestania	E15/1190 E15/1416 E63/1365 E77/2207 E77/2219 E77/2220 E77/2239 E77/2303 P77/4290 P77/4291	Surrendered 29 July 2016 Transaction with Hannans Ltd completed 29 September 2016 “ “ “ “ “ “ “ “

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APPENDIX B: MINERAL RESOURCE ESTIMATES

Mt Marion Resource Table for 0.5% Li2O cut-off

Category (JORC, 2012)	Tonnage (Mt)	Li2O, %	Fe %
Indicated	28.9	1.35	1.06
Inferred	48.9	1.38	1.10
Total	77.8	1.37	1.09

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.

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