QUANTUM GRAPHITE LIMITED — Capital/Financing Update 2014

Aug 7, 2014

ASIA PACIFIC I EUROPE I NORTH AMERICA

==> picture [280 x 88] intentionally omitted <==

ASX ANNOUNCEMENT

ASX: VXL & VXLO

8 August 2014

GEOPHYSICS INDICATE MAJOR NEW GRAPHITE TARGETS

• Geophysicsdefinesignificantnewsub4surfacetargetsacrossexistingMineralResource

• PhaseIIfeasibilitystudyprogramdefiningUley2Pitforexpandedoperations

Existing6.4Mt*Resource

Valence!Industries!Limited!(ASX:VXL!&!ASX:VXLO)!(the!Company)!continues!to!refine!its! understanding!of!the!geology!and!mineralisation!at!its!flagship!Uley!Graphite!project.!!The!Uley!! Graphite!!project!!is!!recognised!!as!!a!!significant!!area!!of!!graphite!!mineralisation,!!and!!one!!of!! the!!largest!!coarse!!flake!!graphite!!deposits!!in!!the!!world.!

The!existing!JORC!(2012)!Mineral!Resource!defines!a!6.4Mt!@!7.1%!graphitic!Carbon!Indicated!and! Inferred!Mineral!Resource.!!!

Valence!is!currently!conducting!an!inUfill!diamond!drilling!campaign!(see! Fig$1:$Below )!across!the! existing!Mineral!Resource!in!preparation!for!an!Ore!Reserve!estimate,!pit!optimisation!and!design! of!the!Uley!2!Pit!and!for!production!feedUmaterial!handling!programs!in!conjunction!with!its! feasibility!study!for!Phase!II,!expected!to!be!completed!in!late!August!2014.!

==> picture [568 x 242] intentionally omitted <==

Fig$1:$Valence$Industries$–$Uley$Graphite$In<fill$Drill$Program$on$Uley$2$Pit$(2014)$

w w w . v a l e n c e i n d u s t r i e s . c o m

2

==> picture [47 x 49] intentionally omitted <==

CurrentDrilling*Program

The!current!drilling!program!being!is!designed!to!provide!the!company!with!information!to!support! a!revision!to!the!existing!Mineral!Resource!estimate!and!report!an!Ore!reserve!under!JORC!(2012)! guidelines!in!preparation!for!the!commencement!of!mining!operations.!The!program!is!also! designed!to!add!to!the!understanding!Valence!has!of!the!Uley!2!Pit!geology!and!the!material! handling!characteristics!for!Phase!II!expansion!of!operations.!

The!drilling!program!has!been!designed!to!allow!geological,!geotechnical!and!metallurgical!data!and! sample!collection!to!be!undertaken!concurrently.!!

The!assaying!and!assessment!of!data!is!progressing!and!results!will!be!made!available!as!they!are! validated.!!!

Visual!inspection!of!the!drill!core!from!the!current!drilling!campaign!has!identified!significant! mineralised!intersections!that!are!consistent!across!the!target!area!of!the!existing!6.4Mt!Resource.!

GeophysicsUnveilSignificantTargets

As!a!part!of!the!broader!geology!program!Valence!Industries!has!undertaken!a!detailed!technical! reUassessment!and!3D!modelling!of!the!Company’s!existing!geophysical!surveys!and!of!the! associated!existing!drilling!and!other!data!for!the!Uley!Graphite!site.!!This!program!has!identified! major!exploration!opportunities!for!future!assessment!and!expansion.!!!

As!is!the!case!with!Uley!1!Pit!and!Uley!2!Pit!these!additional!opportunities!are!located!on!Valence’s! existing!tenements.!!These!exploration!opportunities!will!require!a!further!program!of!drilling!to! assess!their!potential.!

Only!a!modest!fraction!of!the!total!4km!strike!length!of!the!conductors!identified!was!tested!by!the! drilling!program!conducted!for!the!development!of!the!Company’s!current!JORC!(2012)!Mineral! Resource.!!The!total!vertical!thickness!of!the!conductive!sequence!is!variable,!notably!up!to!150m!in! the!proposed!Uley!2!Pit!area.!!The!major!exploration!opportunities!shown!by!this!modelling!appear! consistent!with!the!broader!regional!geological!interpretation!of!an!anticlinorium,!defined!by!an! eastern!limb,!a!western!limb!and!a!fold!nose!area!which!hosts!the!existing!Uley!1!Pit.!!!

The!Valence!Industries!geologists!are!confident!that!these!exploration!areas!have!the!potential!to! contain!significant!additional!mineralisation!comparable!to!that!found!during!initial!drilling!over!the! proposed!Uley!2!Pit!area!which!established!the!existing!graphite!resource.!!!

The!modelling!of!the!identified!exploration!opportunities!is!shown!in!the!new!3D!Geophysical! Model!(Fig!2:!Below).!!The!coloured!areas!designate!projected!mineralisation!derived!from! electrical!conductivity!and!magnetic!susceptibility!measurements!and!visually!appears!as!a!subU surface!mountain!range.!!The!brown!area!delineates!relatively!lower!response!and!incorporates!the! area!mined!historically!as!the!Uley!1!Pit.!!The!Uley!1!Pit!has!previously!delivered!a!strong!range!of! flake!graphite!products.!!!

The!green!area!delineates!an!area!of!relatively!higher!geophysical!response!in!which!the!Company! anticipates!higher!average!grades!of!graphite!mineralisation.!!In!the!area!of!Uley!2!Pit!(the!existing! JORC!Resource)!the!geophysical!results!correlate!strongly!with!the!existing!drilling!data.!!

w w w . v a l e n c e i n d u s t r i e s . c o m

3

==> picture [47 x 49] intentionally omitted <==

==> picture [568 x 256] intentionally omitted <==

----- Start of picture text -----

N
----- End of picture text -----

Fig$2:$Valence$Industries$–$3D$Geophysical$Image$of$Uley$Graphite$(2014)$$ Existing$Uley$1$Pit$(Purple)$and$Proposed$Uley$2$Pit$(Pink)$

The!baseline!data!informing!the!current!modelling!by!Valence!Industries!was!derived!from!a!series! of!electrical!conductivity!and!magnetic!susceptibility!measurements!made!on!drill!core!and!rock! specimens.!!A!ground!Time!Domain!electromagnetic!(TEM)!survey!resulted!in!a!large!range!of! conductivity!findings!that!correlated!well!with!a!visual!assessment!of!graphite!grade.!!The!TEM! survey!produced!a!number!of!very!conductive!trends,!essentially!forming!two!windows!within!the! extensive,!very!resistant!host!rock!(comprising!gneisses!and!schists!of!the!Hutchison!group)!and! those!results!are!modelled!in!Fig!2:!Above!and!are!further!illustrated!in!Fig!3:!Below.!

==> picture [568 x 242] intentionally omitted <==

----- Start of picture text -----

North
----- End of picture text -----

Fig$3:$Valence$Industries$–$interpretive$geophysics$(TEM)$modelling:$$ $Conductive$Trends$Providing$Exploration$Opportunities$

w w w . v a l e n c e i n d u s t r i e s . c o m

4

==> picture [47 x 49] intentionally omitted <==

RegionalExplorationUpsidefor*Valence

Further!exploration!work!will!be!undertaken!in!future!on!multiple!identified!targets!held!under!the! Valence!exploration!lease!EL4778.!!This!exploration!licence!covers!an!expansive!area!of!75km[2!] to! the!south!and!west!of!the!existing!Uley!Graphite!Mining!Leases!held!by!Valence!Industries.!

==> picture [410 x 444] intentionally omitted <==

Fig$4:$Valence$Industries$–$Tenements$&$Regional$Exploration$

The!Homestead,!Kacey,!Fisheries!and!Salt!Lake!prospects!all!have!similar!geophysical!responses!to! Uley!1!Pit!and!the!Uley!2!Pit!and!exploratory!drilling!and!geochemical!sampling!will!be!undertaken! in!future!as!part!of!the!Company’s!longer!term!resource!planning!strategy.!

For!further!information,!please!contact:!!

Christopher!S.!Darby! CEO!&!Managing!Director! info@valenceindustries.com! +61!8!8418!8564!!

w w w . v a l e n c e i n d u s t r i e s . c o m

5

==> picture [47 x 49] intentionally omitted <==

The$information$in$this$Announcement$that$relates$to$the$in$situ$Mineral$Resources$is$based$on,$and$fairly$ represent,$the$Mineral$Resources$and$information$and$supporting$documentation$extracted$from$the$report,$ which$was$prepared$by$a$competent$person$in$accordance$with$the$JORC$Code$(2012$edition)$and$released$to$ ASX$ by$ the$ Company$ on$ 18$ November$ 2013.$ $ The$ Company$ confirms$ that$ it$ is$ not$ aware$ of$ any$ new$ information$or$data$that$materially$affects$the$information$included$in$the$original$market$announcement.$ All$ material$ assumptions$ and$ technical$ parameters$ underpinning$ the$ Mineral$ Resource$ estimates$ in$ that$ previous$release$continue$to$apply$and$have$not$materially$changed.$

The information in this Announcement that relates to the further interpretation of the geophysics as they relate to the Mineral Resources is based on information compiled by Ms Karen Lloyd, who has been engaged as General Manager – Technical Delivery by Valence Industries. Ms Lloyd is a Member of the Australian Institute of Mining and Metallurgy. Ms Lloyd has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activities being undertaken to qualify as Competent Persons as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Ms Lloyd consents to the inclusion in this release of the matters based on their information in the form and context as it appears.

w w w . v a l e n c e i n d u s t r i e s . c o m

6

==> picture [47 x 49] intentionally omitted <==

VALENCEINDUSTRIES

AboutValenceIndustries&GraphiteManufacturing

Valence!Industries!(ASX:VXL!&!VXLO)!is!the!owner!and!operator!of!the!only!graphite!mining!and! manufacturing!facilities!in!Australia!located!at!Uley!in!South!Australia!near!the!major!regional! centre!of!Port!Lincoln.!!In!April!2014!and!just!four!months!after!listing!on!the!ASX,!Valence! Industries!achieved!the!first!sales!of!graphite!by!an!Australian!company!in!more!than!20!years.!

The!Company!is!bringing!its!existing!plant!and!substantial!infrastructure!into!production!in!Phase!I! with!a!focus!on!global!markets!across!multiple!graphite!product!ranges.!!Graphite!production!will! commence!in!the!third!Quarter!of!2014,!with!plans!for!expanded!mining!and!graphite! manufacturing!in!Phase!II!increasing!through!2015.!!!

Located!only!23!kilometres!from!Port!Lincoln,!the!regional!centre!for!the!Lower!Eyre!Peninsula!in! South!Australia,!Valence!Industries’!Uley!Graphite!project!is!recognised!as!a!significant!area!of! graphite!mineralisation,!and!one!of!the!largest!coarse!flake!graphite!deposits!in!the!world.!The! deposit!contains!disseminated,!highUgrade!flake!graphite!and!the!mineralisation!is!near!surface,! with!the!final!manufactured!graphite!products!recognised!and!purchased!by!many!customers!for! its!high!quality.!!

The!company!holds!two!existing!Mining!Leases!and!two!associated!Retention!Leases,!along!with! an!extensive!Exploration!Licence,!for!the!conduct!of!its!operations.!!

Valence!Industries!is!in!the!fortunate!position!of!owning!the!land!on!which!its!current!and! proposed!expanded!operations!are!conducted!along!with!the!extensive!existing!infrastructure.!

ManufacturingANewCarbonFuture&AdvancedGraphene*Program

The!Company!operates!as!an!industrial!manufacturer!of!highUgrade!flake!graphite!products!for! distribution!and!sale!to!global!markets.!!Valence!Industries!owns!established!processing!facilities! and!infrastructure!to!manufacture!a!wide!range!of!graphite!product!lines!for!multiple!applications! and!multiple!industries.!!

The!Company!produces!and!sells!its!graphite!products!from!its!Uley!Graphite!facilities!in!regional! South!Australia!for!delivery!to!diversified!markets!for!graphite!in!the!Asia!Pacific,!Europe!and! North!America.!!As!a!vertically!integrated!manufacturer!of!specialist!graphite!product!ranges! Valence!Industries’!branded!products!are!designed!to!meet!current!and!future!customer!demand.!!

The!Company!is!also!pursuing!research!into!advanced!fields!and!applications!for!graphite.!!That! program!includes!the!relationship!with!the!University!of!Adelaide!for!the!establishment!of!a! dedicated!Graphene!Research!Centre!in!Adelaide.!!Graphene!is!one!of!the!most!significant!steps! forward!in!the!world!of!advanced!materials!with!the!potential!for!transformative!and!disruptive! technologies!and!the!leading!research!in!this!area!from!the!University!of!Adelaide!on!natural!flake! graphite!has!originated!from!work!on!the!Company’s!Uley!Graphite.!!The!Graphene!Research! Centre!program!will!see!the!development!and!commercialisation!of!processes!and!products!for! the!application!of!graphene.!

w w w . v a l e n c e i n d u s t r i e s . c o m

7

==> picture [47 x 49] intentionally omitted <==

==> picture [568 x 282] intentionally omitted <==

VALENCE INDUSTRIES ULEY GRAPHITE MINING & MANUFACTURING SITE SOUTH AUSTRALIA, AUSTRALIA

w w w . v a l e n c e i n d u s t r i e s . c o m