Geology, mining and beneficiation

The Mawson Iron Province, which extends over both sides of the Barrier Highway from the towns of Yunta to Broken Hill (~200km distance), covers approximately 12,000 square km, about the equivalent size of Sydney. The combined exploration tenement area of Magnetite Mines (Royal Resources and Lodestone Equities), the largest holder in the area, is 4,370 km square (3/4 size of Shanghai).

This is not grass roots exploration. Magnetite Mines has JORC 2004 Resources approaching 4 billion tonnes1, and with modest additional drilling these resources could be significantly increased. A large proportion of any new funding will be used to drill resources and begin a comprehensive DFS - this can be done sequentially or in parallel. The Braemar Iron Formation is well known and understood. Our geological knowledge and certainties are quite advanced. Where we have no or only limited drilling, we apply field mapping and observations, as well as high resolution air and ground geophysics to get a good understanding of the exploration potential in regards to the potential deposit size. We have pioneered ground magnetometer surveying in the Braemar. Recently, Magnetite Mines announced a conservative Exploration Potential of 16 to 34 Billion Tonnes2.

The knowledge we have of Magnetite Mines’ 3.9 billion tonne of JORC 2004 Resources at the Razorback Deposit and Ironbark Hill Prospect1, translates directly across to other areas in our Braemar land package. This includes the 100% Lodestone owned Olary Magnetite Exploration Licences, (containing the Devonborough and Red Dam Prospects) that have had significant drilling and have an Exploration Potential of 5 to 8 billion tonne3. The further drill-out of Magnetite Mines and Lodestone’s Resources should ensure a significant increase in perceived valuation of a merged entity. A further increase will come from completion of the DFS and the engineering of the infrastructure solution. The combined potential could exceed 50 Billion tonne2,3. This is definitely the right time to fast track the development of the Mawson Iron Province.

(JORC = Joint Ore Resource Committee of the Australasian Institute of Mining and Metallurgy - a code of the reporting of exploration potential, ore resources and ore reserves)

(DFS = Definitive Feasibility Study - which is at a level of detail to secure funding for the project and to allow “bid-ready” construction packages to be prepared)

1  Reported to ASX 11/6/2013. The Mineral Resource information for the project was prepared and first disclosed under the JORC Code 2004 and the information has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last reported.

2  ASX Announcement 29/10/2015. Note that there has been insufficient exploration to define a Mineral Resource and it is uncertain if further exploration will result in the determination of a Mineral Resource. The estimate of an exploration target tonnage should not be construed as an estimate of Mineral Resource.

3  Based on Braemar Iron Pty Ltd and Braemar Infrastructure Pty Ltd Conceptual Feasibility Studies

The in-situ grades do seem low, but the measure that really matters is the cost per tonne of high grade, high quality concentrate loaded onto ships and delivered to the customers’ steel mills. From Lodestone’s conceptual studies1, we are projecting a cost in the lowest quartile of the industry cost curve. That is highly competitive with even the largest DSO producers.

1  Based on Lodestone Equity Group Conceptual Feasibility Studies

Studies1 show that at the initial designed production rate of 25 million tpy of magnetite concentrate planned, we will have the installed capacity to pump 70 Giga Litres (GL) - (one GL equals 1 million tonnes of water) per year of sea water from Spencer Gulf to the mine site. At the mine site, there will be a desalination plant to produce 12.5 GL of desalinated, high quality water that will be returned to the coast as part of the slurry of water and high grade magnetite concentrate. After filtering of the slurry on the floating port, this water will be available for industrial, municipal and horticultural use; or can be returned to the mine for reuse.

The slurry is a mixture of (approximately) two parts magnetite concentrate to one-part water, by weight. The desalination plant at the mine site will also produce all other fresh water requirements for the mining and concentrator operations. All the tail brine from the desalination plant will be added to the concentrator process water supply.

1  Based on Lodestone Equity Group Conceptual Feasibility Studies. There is a low level of geological confidence associated with inferred mineral resources and there is no certainty that further exploration work will result in the determination of indicated mineral resources or that the production target itself will be realized.

Studies1,2 indicate that sea water is the only risk free source of water for the project. South Australia is the driest state in Australia and hence a risk free water supply is critical. Reliance on alternative sources such as underground aquifers all impose significant continuing risks on the project. Even though using sea water we will be continually working to minimising quantities. For example, we plan to add the brine tails from desalination to the process water (the water used in the concentrator). Free water will be returned from the tailings repository to the process plant etc.

We are proposing to use desalinated water in the slurry pipeline to avoid corrosion issues. This means that after filtering of the slurry on the FPSO we will have significant quantities of high quality desalinated water available for possible industrial, municipal and horticultural use - 12.5 GL for every 25 million tonne of concentrate shipped.

1  Based on Lodestone Equity Group Conceptual Feasibility Studies

2  ASX announcement 27th November 2013

Many minerals processing operations in Australia already use ground water that is far more saline than sea water. Several magnetite operations globally use sea water in concentrator operations.

Seawater has been employed globally in gold, nickel, copper, iron ore and diamond concentrators. In the Eastern Goldfields of Western Australia almost every concentrator uses hyper saline water, up to seven times the salinity of sea water. These include many nickel concentrators and dozens of gold concentrators. In Indonesia, Newmount’s Batu Hijau has used seawater since operations commenced in 2000. In Chile every new copper concentrator being built uses sea water for water supply as fresh water is no longer available. For example, Las Lucas copper moly concentrator has employed sea water since 1995. In South Africa, almost all of its western diamond recovery plants employs sea water in processing. Iron ore plants such as those at Kirkenes, Norway have used sea water for the best part of forty years. The technology for the use of seawater is not new or novel.