Level 14

Level 5

172 St George’s Terrace

64 Clarence Street

PERTH WA 6000

SYDNEY NSW 2000

PO Box 7625

PO Box R1931

CLOISTERS SQUARE WA 6850

ROYAL EXCHANGE NSW 1225

P: +61 8 9288 3388

P: +61 2 9024 9100

Neometals Ltd All on track for mid-year lithium production

2 February 2016

Construction of the Mt Marion Lithium Mine in WA (NMT 45%, Mineral Resources (ASX:MIN) 30%, Jiangxi Ganfeng Lithium 25%) started in November 2015, with MIN funding the capex on a BOO basis. In the 28 January 2016 Quarterly Activities Report, NMT restated a mid-2016 production start-date (State One forecast: July 2016) with first shipments expected in the September 2016 quarter.

NMT A$0.155 (TP A$0.27)

NMT and MIN also announced that 100% offtake partner Ganfeng has agreed to expand the scope of the current 200ktpa 6% spodumene concentrate offtake agreement, by 80ktpa of additional lower-grade (46%) material which could be generated through the addition of a flotation circuit to the current beneficiation plant. During the quarter, work commenced on the DFS for the down-steam Lithium Hydroxide Project (the DFS is on-schedule for completion in mid-2016). Post the quarterly activities report, NMT announced that the first 46 RC drill holes of a 335-hole resource infill and extension programme at Mt Marion was completed at the No.6 Deposit. The dill programme is expected to be completed in the June quarter 2016, with an upgraded Mineral Resource Estimate and Ore Reserve planned to be completed in the June and September 2016 quarters respectively.

NPV-based valuation: A$0.27ps (unchanged) With production on track for a mid-year start, and with 100% of offtake contracted to JV partner Ganfeng for the first three years, we believe that NMT is well-positioned to take advantage of a strong demand environment for lithium oxide. Risks to our earnings profile and target price include, but are not limited to: lithium oxide and AUD:USD exchange rate volatility, the production start-date at Mt Marion and subsequent ramp-up profile, the start-up date and operational performance at the lithium oxide beneficiating plant (currently in DFS-stage), and project development (particularly funding) at NMT’s (100%) Barrambie Titanium-Vanadium Project.

Spodume price (US$/t)

Risk Assessment Higher Resources – Lithium David Brennan, CFA Senior Investment Analyst [email protected] +61 (0)2 9024 9142

Neometals Ltd ASX Code 52 week range Market Cap (ASm) Shares Outstanding (m) Av Daily Turnover (shares) ASX All Ordinaries FY16E BV per share (A$) EPS FY16E (A$) Net Debt/(Cash) FY16E (A$m)

FY15A

FY16E

FY17E

FY18E

FY19E

450

450

450

459

468

ASX Small Resources

0.83

0.74

0.80

0.80

0.80

ARP (A$/t)

na

na

544

555

566

Sales (NMT interest) (t)

na

0

90,000

90,000

90,000

500

Revenue (A$m)

0

0

48.9

49.9

50.9

400

-11.3

-4.4

10.3

10.6

10.9

na

na

49

50

51

na

na

430

437

444

200 100

Costs (A$/t ore) Costs .(A$/conc.) Normalised NPAT (A$m)

-10.7

-4.6

6.3

6.6

6.9

EPS Reported (A$)

-0.02

-0.01

0.01

0.01

0.01

EPS Normalised (A$)

-0.02

-0.01

0.01

0.01

0.01

DPS (A$)

0.00

0.00

0.00

0.00

0.00

na

na

14.0

13.4

12.7

Net debt / (cash) (A$m)

1

-16

-23

-29

-36

Capex (A$m)

-3

-4

-2

-2

-2

PER (x)

NMT

700

AUD:USD

EBITDA (A$m)

NMT A$0.03-A$0.23 92 559 1.7m 5,094 0.02 -0.01 -16

Relative price performance

Key Financials Year-end June

Recommendation Speculative Buy

600

300

0 Jan-15

Apr-15

Jul-15

Oct-15

Source: IRESS

So urce: IRESS, Co mpany Data, State One Sto ckbro king. Share price: $ 0.155 Feb 01, 2016

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Jan-16

Financial Statements Neometals Limited Year ending June Profit & Loss Statem ent (A$M)

FY15A

FY16E

FY17E

FY18E

FY19E

FY15A

FY16E

FY17E

FY18E

Spodumene (6% Li2O) (CIF, US$/t)

450

450

450

459

468

(12)

AUD:USD

0.83

0.74

0.80

0.80

0.80 585

Revenue

0.0

0

49

50

51

Mining

0.0

0

(12)

(12)

Processing

Lithium Price

FY19E

0.0

0

(14)

(14)

(14)

Spodumene (Li20)(CIF, A$/t)

542

608

563

574

Corporate/Royalty/Other

(11.3)

(4)

(13)

(13)

(14)

NMT Average Received Price (A$/t)

na

na

544

555

566

EBITDA Depreciation & Amortisation

(11.3) 0.0

(4) 0

10 (2)

11 (2)

11 (2)

Premium / (discount)

na

na

-3%

-3%

-3%

Operating profit

(11.3)

(4)

9

9

9

Production profile (Mt Marion)

FY15A

FY16E

FY17E

FY18E

FY19E

0.0

0

0

0

0

Mill throughput (Mt)

0

0

1.75

1.75

1.75

(11.3)

(4)

9

9

9

Li2O grade (%)

0

1.37%

1.37%

1.37%

1.37% 6.00%

NOI EBIT Interest income

0.8

0

0

1

1

Target concentrate Li2O grade (%)

0

6.00%

6.00%

6.00%

(0.5)

(0)

(0)

(0)

(0)

Spodumene grade (%)

0

22.8%

22.8%

22.8%

22.8%

0.3

0

(3)

(3)

(3)

Spodumene tonnage (t)

0

0

399,583

399,583

399,583

Reported NPAT

(10.7)

(5)

6

7

7

Recovery (%)

0

50%

50%

50%

50%

Norm alised NPAT

(10.7)

(5)

6

7

7

Spodumene conc. (t) (100%)

0

0

200,000

200,000

200,000

EBITDA Margin (%)

na

na

21%

21%

21%

na na

45% 0

45% 90,000

45% 90,000

45% 90,000

Interest expense Tax expense

Operating profit margin (%)

NMT equity share (%) NMT equity share (t)

na

na

18%

18%

19%

EPS Reported (A$)

(0.02)

(0.01)

0.01

0.01

0.01

Costs (A$/t Spodum ene conc.)

FY15A

FY16E

FY17E

FY18E

FY19E

EPS Normalised (A$)

(0.02)

(0.01)

0.01

0.01

0.01

Mining

na

na

132

134

136

nm

nm

5%

5%

Processing

na

na

152

155

158

Corporate/Royalty/Other Total unit cash costs

na

na

146

148

150

na

na

430

437

444

EPS grow th (%)

nm

DPS - Declared (A$) Avg. no. of fully-diluted shares (m)

0.00 502

0.00 544

0.00 569

0.00 569

0.00 569

YE no. of fuly-diluted shares (m)

509

569

569

569

569

FY15A

FY16E

FY17E

FY18E

FY19E

(10.9)

(4)

10

11

11

(0.2)

(0)

1

0

0.3

0

(3)

(3)

Status

Mt

Grade (%)

Tonnes

Indicated

10.1

1.5%

145,725

Inferred

13.2

1.3%

176,746

0

Total

23.2

1.4%

322,471

(3)

TiO2

47.2

22.2%

10,468,960

V 2O5

47.2

0.6%

297,360

Fe2O3

47.2

46.7%

22,042,400

Resources (JORC) Cash Flow Statem ent (A$M) EBITDA Investment in w orking capital Tax expense Operating Cash Flow

Mt Marion Lithium Project

(10.8)

(4)

9

8

8

Capex

(2.7)

(4)

(2)

(2)

(2)

Other investments

0.0 (2.7)

26 22

0 (2)

0 (2)

0 (2)

Net interest received / (paid)

0.3

(0)

0

0

0

Leverage

FY15A

FY16E

FY17E

FY18E

FY19E

Debt draw dow n / (repayment)

0.0

0

0

0

0

Net Debt/Equity

4%

cash

cash

cash

cash

Dividends paid

0.0

0

0

0

0

Gearing (ND/ND+E)

2%

cash

cash

cash

cash

(0.1) 0.2

0 (0)

0 0

0 0

0 0

Interest Cover (x)

na

-34.5

na

na

na

7.7

(0)

0

0

0

Valuation Ratios (x)

FY15A

FY16E

FY17E

FY18E

FY19E

(5.6)

17

7

6

6

Normalised P/E Price/OP Cash Flow

na -7

na -17

12.2 8.9

11.6 9.9

11.1 9.6

0.03

0.02

0.03

0.04

0.05

-7

-13

5

4.4

3.6

-81%

-53%

42%

31%

24%

Investing Cash Flow

Equity raised / (repaid) Financing Cash Flow Non-operating & Other Inc/(Dec) in Cash Balance Sheet (A$M)

FY15A

FY16E

FY17E

FY18E

FY19E

Barrambie Ti-V Project

Note: Barrambie Resorce is 74% Indicated and 26% Inferred

Book value per share (A$)

Cash & Equivalents

1.4

18

25

31

38

Receivables

0.6

1

5

5

5

ROE (%)

Inventories Other Current Assets

0.0 1.0

0 1

4 1

4 1

4 1

SOTP Valuation

12.7

17

17

18

18

PPE and Exploration & Development Deferred tax asset

0.0

0

0

0

0

Other Non Current Assets

6.8

(19)

(19)

(19)

(19)

EV/EBITDA

(A$m ) 70

(A$/share) 0.12

Com m ent NPV valuation

Dow nstream Processing (unrisked)

119

0.21

NPV valuation

Downstream risk weighting

50%

Mt Marion Lithium Mine inventory

22.6

18

33

40

47

Dow nstream Processing (risked)

60

0.10

50% of unrisked NPV

Payables and other current Liabilities Short Term Debt

2.1 1.9

2 2

11 2

11 2

11 2

Barrambie Titanium Project Other (Lake Johnston Ni Project)

10

0.02

Nominal

0

0.00

Long Term Debt

0.0

0

0

0

0

Group Enterprise value

139

0.24

Other Non Current Liabilities

5.3

5

5

5

5

Net (debt)/cash (FY16E)

16

0.03

Total Liabilities

9.3

9

18

18

18

Group Equity value

155

0.27

13.2

9

15

22

28

0.5

(16)

(23)

(29)

(36)

Total Assets

Total Equity Net Debt (Cash) Top 3 Shareholders

%

Melaid Holding Inc

7.9

HSBC Custody Nominees (Australia) Ltd

3.7

JP Morgan Nominees Australia ltd

3.4

Date Sep-15

Neometals Ltd (NMT, formerly Reed Resources Ltd) has a 45% equity interest in the Mt Marion Lithium Project (WA), which is scheduled for first production of 200ktpa Li 2 O from mid-2016. NMT also has a 70% interest in a downstream processing venture - Reed Advanced Materials (RAM) - which is looking to beneficiate a portion of the Mt Marion output to higher-value Lithium Hydroxide (LiOH) and Lithium Carbonate (Li 2 CO 3 ). In addition, NMT has a 100% interest in the large (44Mt) Barrambie Titanium-Vanadium Project (WA); NST's pre-feasibility study (PFS) estimates the project's NPV at A$355m.

Source: Company, IRESS, State One Stockbroking forecasts

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General Advice Warning The contents of this document have been prepared without taking account of your objectives, financial situation or needs. You should, before taking any action to acquire or deal in, or follow a recommendation (if any) in respect of any of the financial products or information mentioned in this document, consult your own investment advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs. Whilst State One Stockbroking Ltd believes information contained in this document is based on information which is believed to be reliable, its accuracy and completeness are not guaranteed and no warranty of accuracy or reliability is given or implied and no responsibility for any loss or damage arising in any way for any representation, act or omission is accepted by State One Stockbroking Ltd or any officer, agent or employee of State One Stockbroking Ltd. If applicable, you should obtain the Product Disclosure Statement relating to the relevant financial product mentioned in this document (which contains full details of the terms and conditions of the financial product) and consider it before making any decision about whether to acquire the financial product. Disclosure This report was prepared solely by State One Stockbroking. ASX did not prepare any part of the report and has not contributed in any way to its content. The role of ASX in relation to the preparation of the research reports is limited to funding their preparation by State One Stockbroking, in accordance with the ASX Equity Research Scheme. ASX does not provide financial product advice. The views expressed in this research report may not necessarily reflect the views of ASX. To the maximum extent permitted by law, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by ASX as to the adequacy, accuracy, completeness or reasonableness of the research reports. The directors and associated persons of State One Stockbroking Ltd may have an interest in the financial products discussed in this document and they may earn brokerage, commissions, fees and advantages, pecuniary or otherwise, in connection with the making of a recommendation or dealing by a client in such financial products. State One Stockbroking Ltd has also received a commission on the preparation of this research note. The Research Analyst who prepared this report hereby certifies that the views expressed in this research document accurately reflect the analyst’s personal views about the company and its financial products. The research analyst has not been and will not be receiving direct or indirect compensation for expressing the specific recommendations or views in this report. This research at all times remains the property of State One Stockbroking Ltd. And as such cannot be reprinted, distributed, copied, posted on the internet, in part or whole, without written prior approval from the Executive Director of State One Stockbroking Ltd.

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