NEOMETALS LTD - Interim / Quarterly Report 2016

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ASX Release 29 July 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 [email protected] neometals.com.au Neometals Ltd ABN 89 099 116 631

QUARTERLY ACTIVITIES REPORT For the quarter ended 30 June 2016

Highlights:

Mt Marion Lithium Project

Total Indicated and Inferred Mineral Resource increased 160% to 60.5Mt at 1.36% Li2O.
Additional US$19.65M received from Mineral Resources Ltd exercising call option.
Mining at Pit 1 and Crushing commenced during the quarter.
Construction activities very advanced and progressing according to plan.

Lithium Hydroxide Project

Positive results for Feasibility Study (‘FS’) on producing battery grade lithium hydroxide and lithium carbonate using the patented ELi[TM] Process.
The FS cost estimates established to an accuracy of +/‐ 15% confirm a production operation is technically feasible and economically viable.
The FS demonstrates an internal rate of return of 51% and a pre‐tax net present value of US$481M using a 12% discount rate.

Barrambie Titanium Project

Completed the formal agreements associated with the exclusive licence (excluding Russia and China) for proprietary process to produce +99% pure titanium dioxide (TiO2).

Forrestania Nickel Project

IP Survey completed over geochemical anomalies. Drilling commenced subsequent to end of quarter

Corporate

Cash and restricted access term deposits $79.25 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.

Construction activities are well advanced at the Mount Marion Project and progressing according to plan.

MRL’s Kwinana workshop is undertaking the manufacture and assembly of key on‐site equipment for the processing plant, with some design modifications expected.

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Image 1. 3‐Stage Crushing Plant and Crushed ore Stockpile

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Image 2. Beneficiation Plant under construction

During the quarter, MIN exercised its option to increase its shareholding in RIM, earlier than envisaged under the existing agreements. The transaction involved the sale of shares in RIM by Neometals to MIN and was completed during the quarter with payment of US$19.65M to Neometals.

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Figure 1. Project Milestones

Figure 2. Project layout below

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Resource Extension and In‐fill drilling

In 2015, the project partners approved an exploration drilling program to extend the Mt Marion lithium resource. During the Quarter, 19,383 metres of RC drilling and 668 metres of diamond drilling was completed, with the programme ongoing.

Mt Marion’s current total Indicated and Inferred Mineral Resources have been boosted by 160% with a new Mineral Resource Estimate published on 5 July 2016.

The results of the Phase 1 drilling programme have increased the Mineral Resource Estimate to Indicated and Inferred Mineral Resources of 60.5 Mt at 1.36% Li2O and 1.09% Fe, at a cut‐off grade of 0.3% Li2O (Table 1), compared to 23.24 Mt at 1.39% Li2O, at a cut‐off grade of 0% Li2O previously.

Table 1. Mt Marion Resource Table for 0.3% Li2O cut‐off

Category (JORC,2012)	Tonnage(Mt)	Li2O(%)	Fe(%)
Indicated	26.4	1.33	1.09
Inferred	34.1	1.39	1.08
Total	60.5	1.36	1.09

Figure 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

The second phase of exploration drilling continues and the Company has:

Identified deep seated pegmatite in Area 2W (see Figure 4 below, per ASX announcement 19 May 2016);
Gained a better understanding of the pegmatite on the western side of Area 1; and
Commenced the extension of the pegmatite in Area 4.

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Figure 4. Oblique (Cross) Section of Area 2W

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Figure 5. Exploration milestones

LITHIUM HYDROXIDE PROJECT (ELi Process)

(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 Engineering Cost Study was completed by the subsidiary of the German‐owned EPC contractor M+W Group, M+W Group (Singapore), in support of a Feasibility Study (“DFS”) for the commercialisation of RAM’s ELi downstream processing technology in a 15,000 – 20,000tpa LCE lithium hydroxide plant, which was completed and announced subsequent to the end of the Quarter.

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%.

Project Development and Corporate strategy

Based on the robust FS results, RAM supports the project progressing to a full, integrated pilot plant study to refine the process design and confirm the operating parameters to sufficient accuracy for the detailed design phase for a full scale plant. RAM plans to undertake this pilot plant evaluation of the patented ELi Process in the FY2016‐17, subject to board approval. A decision to progress to the construction phase of a full scale plant would be subject to successful execution of the full pilot scale test work and completion of detailed design of the full scale plant.

Neometals and MIN have rights to deploy the ELi Process and to purchase spodumene concentrates from Mt Marion to secure the supply chain for an ELi processing plant.

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

Key assumptions

Operating and capital costs are presented as at end of the 4[th] Quarter of FY2015‐16 with an indicative accuracy of ±15%. All analysis is in US dollars and assumes real long‐term prices of US$11,000/t for high purity ‘battery quality’ LiOH.H2O and US$ 10,000/ t of high purity ‘battery quality’ Li2CO3.

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Figure 6. Benchmarking Feasibility Study with 2015 Industry Cash Costs

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 at the project) and 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$20,000 per tonne (source: Industrial Minerals 21 July 2016).

The price of chemical grade lithium concentrates (6% Li2O) are estimated at US$540 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.

BARRAMBIE TITANIUM PROJECT

(Neometals 100% through Australian Titanium Pty Ltd)

During the Quarter the Company completed the legal agreements for a global (ex Russia and China) exclusive licence of proprietary technology currently being evaluated for its Barrambie Titanium Project.

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 plans to undertake a full pilot plant evaluation of the proprietary hydrometallurgical technology, with this work planned to commence in the first half of 2017 following mini‐pilot plant optimisation testwork which has been board approved and scheduled to start in the September Quarter 2016. 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$2,275 per tonne on a CIF basis to USA (source: Industrial Minerals 21 July 2016).

NEOMET PROCESSING TECHNOLOGY

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

NMT will be 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 NMT and the owners of the technology.

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Figure 7. Neomet Proprietary Acid Regeneration Technology Process Model

NMT has 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 NMT. NMT’s 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.