Quarterly Activities Report

January 1, 2014

Highlights

Mt Marion Lithium Project

  • "Proof of Concept" with the production of high purity lithium hydroxide via chlorination and proprietary purification of Mt Marion spodumene and conventional electrolysis
  • Final product exceeds battery grade lithium hydroxide specifications
  • Recovery of lithium from mineral concentrate to final product greater than 90%
  • Results confirm potential to deliver lowest quartile operating costs as indicated in Pre-feasibility Study 2012.

Barrambie Titanium Project

  • Scoping Study results indicate potential economic viability of producing high purity TiO2 directly from Barrambie ore.
  • Potential lowest quartile operating cost of A$1,214/t for 99.9% pure TiO2
  • Executed non-exclusive licence agreement to use patented third-party hydrometallurgical process on Barrambie ore.

Comet Vale Project

  • Sale process progresses to negotiation of sale agreement with preferred bidder.

Mt Finnerty Project

  • Reed resumes 100% iron ore rights. Sale process commenced, indicative offers received.

Meekatharra Gold Operation

  • Administrators of subsidiary GMK Exploration Pty Ltd ceased mining on 28 November, ceased milling on 16 December 2013. Sale process continues.

Corporate

  • Reduction in Barrambie Gas performance bond increases available cash by $2.7M
  • Cash and restricted access term deposits $10.1 million
  • $2M Standby funding facility from Chairman David Reed drawn down, convertible notes issued for equivalent amount

Extract:

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) by successfully producing high-purity lithium battery feed-stocks, Lithium Hydroxide and Lithium Carbonate, on a continuous scale with RIM’s proprietary process flow sheet using spodumene concentrates from Mt Marion. 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 “proof of concept” batch test work program commenced in March 2013 and was completed in November 2013. SGS Lakefield Oretest conducted the hydrometallurgical test work which produced high purity lithium chloride from Mt Marion spodumene concentrates. Murdoch University then produced high purity battery grade lithium hydroxide by electrolysing the lithium chloride solution produced in the test work program. The electrolysis process is similar to the Chlor-Alkali process used to produce caustic soda (sodium hydroxide) and hydrochloric acid (simplified flowsheet below).

Project Development and Corporate Strategy

The company has engaged a specialist laboratory in the USA to set up a continuous semi-pilot plant for electrolysis of lithium chloride (LiCl) producing lithium hydroxide (LiOH). This plant will provide key information for Process Design of a new or existing processing facility. The semi-pilot plant is under construction and is expected to be commissioned in February 2014 and completed in June quarter of 2014.

Subject to the successful completion of the semi-pilot plant and RIM board approval, an Engineering Cost Study to develop capital and operational costs, would be the next stage in the development of the project.

Reed is working with MRL in preparing RIM to become an independently financed, advanced minerals company focused on being an integrated lithium producer. Strategic discussions continue with third parties, including existing chlor-alkali producers, in relation to various transaction structures. 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

Several leading commodity researchers have forecast an extraordinary increase in the consumption of high-purity, battery-grade lithium hydroxide and carbonate, underpinned by growth in rechargeable batteries. The current median prices for battery-grade lithium hydroxide and lithium carbonate is US$6,575 and US$6,600 per tonne on a CIF basis to US or Europe (source: Industrial Minerals 16 January 2014).

BARRAMBIE FE-TI-V PROJECT

(Reed 100%)

During the quarter the Company reported the results of its Scoping Study on its Barrambie Titanium Project. This initial economic assessment by Snowden Mining Industry Consultants (Snowden) indicates potential for a viable hard-rock titanium and vanadium mining and processing operation and recommends progression to a Pre-Feasibility Study.

The highlights for an initial 50,000tpa throughput module, the subject of the study, are summarised below. Operating and Capital Costs are both valid as at October 2013 with an indicative accuracy in the range of ±35%. All analysis is in A$ dollars and assumes a selling price of US$3,000/t for titanium dioxide and US$11,000/t for vanadium pentoxide, and uses an AUD exchange rate of US$1.00.

The Scoping Study has identified many opportunities to further improve the economics by optimising factors such as scalability of plant throughput rate, co-generation of electricity to reduce operating costs and to recover and market pure iron and aluminium oxide products.

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.

Technology Licensing Agreement

During the quarter the Company executed an agreement to licence a patented acid leach process to extract all valuable metals from the Barrambie Titanium-Vanadium-Iron deposit, this process was evaluated in the Snowden Scoping Study.

In exchange for the non-exclusive licence, Reed will pay a royalty of 5% of gross revenue. In addition, the patent holders will also receive up to 20% of the value of any transaction that involves a significant change in control of the subsidiary holding the project tenements.

Project Development and Corporate Strategy

A continuous scale mini-plant trial of the process will commence in February 2014 and subject to the success of the test work it is Reed’s intention to proceed with a pre-feasibility study (PFS) as recommended by Snowden. The proposed work plan to the end of the PFS is anticipated to be funded internally, with an anticipated date of completion of September 2014. 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.

COMET VALE GOLD PROJECT

(Reed 100%)

The Sand Queen mine remains on care and maintenance. A sale process for the Comet Vale project is continuing with the negotiation of a sale agreement with the preferred bidder which remains incomplete and there can be no assurance that a binding agreement will emerge. Reed will keep the market informed as matters develop further.

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

No significant activity occurred during this quarter. During the quarter the Company announced the resumption of 100% of the iron rights at its Mt Finnerty Project following the amicable termination of the “Mt Finnerty Iron Ore Joint Venture” with Cliffs Asia Pacific Iron Ore Pty Ltd (“Cliffs”).

All prospective mining leases and exploration licences are granted and endorsed for iron ore under section 111 of the Mining Act. The Project has the benefit of extensive infrastructure, the Perth-Kalgoorlie Railway transects the tenure which links it to two government-owned bulk export ports.

Reed engaged PCF Capital Pty Ltd to run a sale process on wholly owned subsidiary Mount Finnerty Pty Ltd (“MFPL”) which holds the tenements and iron rights, as part of its continuing asset realisation program. A short program of RC drilling has been planned into one of more than twenty targets to demonstrate the exploration potential to several interested parties. Indicative bids have been 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%)

Exploration during the quarter consultants, Newexco, completed an interim assessment of the NiS mineralisation potential based on the lithogeochemistry of all drilling completed to date. Petrographic identification of nickel sulphides in drill holes within the shear zone and in fresh rock to the north provides evidence of multiple sulphide mineralising events. The conceptual geological model is illustrated below (Figure 2). There are two to three distinct populations of base metal signatures consistent with multiple flows interpreted previously by geological logging of the Green Dam ultramafic pile. Geophysical inversion modelling of the aeromagnetic data suggests a moderately southward-plunging high magnesian magnetic body. Drilling has not tested this body effectively due to depth and distribution of coverage.

Forthcoming exploration is planned to infill geophysical surveys over the 4km prospective strike length ahead of the diamond drilling phase, which has been postponed until completion of these surveys. The Company was successful in obtaining a $75,000 exploration incentive grant from the Department of Mines and Petroleum.

MEEKATHARRA GOLD PROJECT

(Reed 100%)

The Meekatharra Gold Project, centred on the Bluebird processing plant, is located 640km northeast of Perth and 10 km south of Meekatharra, in the Murchison Region of Western Australia.

On the 16th August 2013, Reed Resources Ltd announced that GMK Exploration Pty Ltd ("GMKE"), the subsidiary of Reed that owns and operates the Meekatharra Gold Project was placed in voluntary administration.

The Administrators, Ferrier Hodgson, ceased mining operations on 7 November and ceased milling on 16 December with gold circuit stripped and now on active care and maintenance.

Administrators are continuing a sale process which remains incomplete and there can be no assurance that a binding agreement will emerge. Reed will keep the market informed as matters develop further.

CORPORATE

Board & Management Changes

Chris Reed assumed the role as managing director effective 1 October 2013 following the resignation of Luke Tonkin.

Darren Wates ceased as joint company secretary on 9 October 2013 with Jason Carone continuing as the sole company secretary.

Dr Vanessa Guthrie resigned as non executive director effective 20 November 2013 due to her increasing commitments and workload as managing director of Toro Energy.

Annual General Meeting (AGM)

The Company’s AGM took place on 20 November 2013 where the following resolutions were carried:

  1. Re-election of Steven Cole as director
  2. Adoption of Remuneration Report
  3. Issue of Convertible Notes to David Reed

Finances (unaudited)

Cash and term deposits on hand as of 31 December 2013 totalled $10.1 million, including $6.2 million in restricted use term deposits supporting performance bonds and other contractual obligations.

During the quarter the Company drew down $2M on the stand by facility provided by the Chairman David Reed to fund the company’s working capital requirements. As a result and following shareholder approval at the AGM 2 million convertible notes were issued to David Reed that may be converted into 66,666,667 fully paid ordinary shares. The terms of the convertible notes are as follows:

Term: 12 months from date of issue

Number of notes: 2,000,000

Face value: $1

Coupon rate: A floating rate that is 3% above the rate paid by noteholder under the noteholder’s external financing arrangements. Interest is payable monthly in arrears.

Conversion price: $0.03

Conversion date: Any time prior to the redemption date, which is 12 months following issue.

Issue of Shares and Grant of Performance Rights

On 9 October the Company granted 3,310,370 performance rights to Chris Reed which may vest on 30 June 2014 or 31 December 2014 and a further 1,098,369 to an eligible employee which may vest on 30 June 2016 or 31 December 2016 on the satisfaction of certain performance conditions based on the Company’s total shareholder return performance and percentile ranking relative to comparator companies.

In addition during the quarter 722,831 ordinary shares were issued to eligible employee following the vesting of performance rights pursuant to the Reed Resources Ltd performance rights plan.

This is an extract. Download the full announcement.

ELi PROCESS

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