ARGONAUT RESOURCES NL

ABN 97 008 084 848

argonautresources.com

ASX: ARE

CAPITAL STRUCTURE:

Issued shares: 443,791,701

Listed options: 38,004,957

(6c, Mar 2017)

Cash on hand: $241,000

DIRECTORS:

Patrick Elliott,

Non-Exec Chairman

Lindsay Owler,

Director/CEO

Andrew Bursill,

Director/Secretary

Malcolm Richmond,

Non-Exec Director

MAJOR PROJECTS

Lumwana West, Zambia

• Copper, cobalt (bulk tonnage)

• Advanced exploration stage

• Argonaut 65%

• Antofagasta 25%

• Argonaut operator

  
  

  Torrens, South Australia

• Copper, gold (large IOCG)

• Access negotiation/ exploration stage

• Pro-rata funding under JV

• Aeris Resources Ltd 70%

• Argonaut 30%

• Argonaut operator

  
  

  Alford, South Australia

• Copper (IOCG)

• Exploration stage

• Funding via farm-out

• Sandfire Resources NL earning 70%

• Sandfire operator

  
  

  Quarterly report

  FOR THE PERIOD ENDING 31 DECEMBER 2015

  
  

  Argonaut Resources NL (Argonaut or the Company) (ASX: ARE) is pleased to provide the following report for the three months to 31 December 2015 (the Quarter).

  
  

  Highlights

  Lumwana West, Zambia

  Option Agreement:

  • Antofagasta advised it has exercised its first option to acquire a 25% interest in the Lumwana West project. The interest holdings in the project are now Argonaut 65%, Antofagasta 25% and the initial shareholders 10%.

  • Antofagasta also advised it has terminated the second option with the effect being it will not proceed to sole fund the second phase.

  • Approved second phase works will be funded pro rata by Argonaut and Antofagasta.

  • Argonaut remains the operator of the project.

    Alford, South Australia

  • Argonaut and its partner, Sandfire Resources NL, have agreed to a two year extension to the farm-in provisions for the Alford project in South Australia.

  • During this extended period Sandfire will continue to sole fund exploration.

    Torrens, South Australia

  • During the Quarter, the Lake Torrens Overlap Proceeding commenced in the Federal Court.

  • This proceeding will determine which of three native title claimant groups (if any) are entitled to native title rights in the area of Lake Torrens and Andamooka Island.

  • The judgement in this matter will clarify the native title situation in the area for the purpose of access negotiations.

    Asset Sale

  • The Company confirms it is aware of the potential to liquidate a major asset. Details of the potential sale remain confidential.

    Business Development

  • The Company has considered numerous exploration and development opportunities in the period with a focus on lithium and graphite projects.

  • Argonaut has applied for two Australian exploration tenements for the purpose of testing lithium exploration concepts.

    Outlook

  • Commodity markets and access to capital will remain challenging. Minimisation of operating costs is essential.

  • Current low asset valuations are providing a unique opportunity to secure additional high quality exploration projects.

  • Argonaut is evaluating numerous opportunities with a view to adding new assets to the Company's portfolio.

Registered Office

Suite 4, Level 9, 341 George Street Sydney, NSW, 2000, Australia

T +61 2 9299 9690

F +61 2 9299 9629

E [email protected]

Adelaide Office

Level 1, 63 Waymouth Street Adelaide, SA, 5000, Australia T +61 8 8231 0381

F +61 8 8231 6092

E [email protected] 1

Corporate

Directors' Fees and Service Fees

In light of the continuing downturn in the commodities market and the need to preserve funds, the Argonaut board and management team have elected to make the following cuts to remuneration packages and service fees:

• Argonaut non-executive directors will take a 25% reduction in fees in addition to previous reductions detailed in the 2015 annual report. Fees will be taken as ordinary shares, with shares being valued on a monthly basis. The issue of shares will be subject to shareholder approval at the 2016 annual general meeting.

• The Argonaut executive director and CEO will take a 25% reduction in fees on top of the reduction detailed in 2015 annual report. Fees will be taken as half cash and half ordinary shares, with shares being valued on a monthly basis. The issue of shares will be subject to shareholder approval at the 2016 annual general meeting.

• The provider of accounting and company secretarial services has agreed to a 25% reduction in fees on top of a capping of monthly fees agreed in 2015. Fees will be taken as half cash and half ordinary shares, with shares being valued on a monthly basis. The issue of shares will be subject to shareholder approval at the 2016 annual general meeting.

Zambia

Lumwana West (Argonaut 65%)

The Lumwana West project is located in the Central African Copperbelt, North-Western Province, Zambia (Figure 1). The area is prospective for large tonnage, low to medium grade copper deposits. There are several major mines nearby to Lumwana West that are hosted in similar geological settings.

Argonaut, via its majority held subsidiary, Mwombezhi Resources Ltd, has been successful in intercepting broad copper intercepts at the Nyungu deposit and has defined a series of large, prospective targets that have now undergone first- pass drill testing.

350,000 mE 400,000 mE

DEMOCRATIC REPUBLIC OF CONGO

Location

ZAMBIA

Argonaut

LUMWANA WEST

Nyungu Deposit and target areas

First Quantum KANSANSHI 1.1Bt at 0.81% Cu

Under expansion to 400,000tpa copper

8,650,000 mN

ZAMBIA

First Quantum SENTINEL 1.2Bt at 0.50% Cu

300,000tpa copper from 2015

16121-HQ-LPL

Barrick

LUMWANA

0 25

kilometres

Road

Nyungu Deposit and targets

1.1Bt at 0.50% Cu

170,000tpa copper - nameplate

Tenement boundary

Mineral deposit projected to surface

Target areas

Lumwana11

Figure 1: The Domes Region has an international scale copper endowment and is host to the new generation of mines in the Central African Copperbelt

2 Argonaut Resources NL | QUARTERLY REPORT | For the period ending 31 December 2015

Overlying Agreement

During the Quarter, Argonaut received two notices from a subsidiary of Antofagasta plc (Antofagasta) in relation to the overlying option agreement between the companies for the exploration and development of the Lumwana West project in Zambia (the Overlying Agreement).

Antofagasta advised Argonaut that it has exercised its first option to acquire a 25% interest in the Lumwana West project. The interest holdings in the project is now as follows: Argonaut 65%, Antofagasta 25% and the initial shareholders 10%.

The second notice states that Antofagasta has terminated the second option under the Overlying Agreement with the effect being it will not proceed to sole fund the second phase. Approved second phase works will be funded pro rata by Argonaut and Antofagasta. Argonaut remains the operator of the project.

Argonaut is continuing to assess its options in relation to the Lumwana West project and these include further definition of the Nyungu copper deposit and exploration of targets defined by the Company within the tenement area which are yet to be explored.

Australia

Alford, South Australia (Argonaut 100%)

The Alford Project on South Australia's Yorke Peninsula lies 20km north-east of Wallaroo within the geological province known as the Olympic Domain. The tenement is prospective for iron oxide copper-gold mineralisation as found at Prominent Hill, Olympic Dam and Hillside.

Alford Farm-in Joint Venture

• During the Quarter, Argonaut and its partner, Sandfire Resources NL, agreed to a two year extension to the farm-in provisions.

• During this extended period Sandfire will continue to sole fund exploration.

  Argonaut previously announced it had signed a farm-in joint venture letter agreement with Sandfire Resources NL (ASX: SFR) for the exploration of the Company's 100% owned exploration licence 5212, Alford, on the Yorke Peninsula in South Australia.

  Under the terms of the letter agreement, Sandfire may earn a 49% interest in the Alford tenement by sole funding

  $4,000,000 of exploration within three years (the First Earn-in).

  Sandfire has now met the minimum expenditure commitment for the First Earn-in and the companies have agreed to extend the period of the farm-in by two years.

  Sandfire then has the right to either form a joint venture with Argonaut's subsidiary, Kelaray Pty Ltd, to jointly explore the tenement or to proceed to earn an additional 26% interest in the project by spending a further $4,000,000 on exploration within an additional three years (the Second Earn-in).

  
  

  Torrens, South Australia (Argonaut 30%)

  The Torrens Joint Venture

  The Torrens Joint Venture is between Argonaut Resources NL and Aeris Resources Limited (ASX: AIS, previously Straits Resources Ltd) and relates to the Torrens Project, EL5614 (previously EL4296).

  The Torrens Joint Venture is exploring for iron oxide-copper-gold systems in the highly prospective Stuart Shelf region of South Australia. The Torrens Project is located near the eastern margin of South Australia's Gawler Craton (Stuart Shelf), within 50 kilometres of Oz Minerals' Carrapateena copper-gold deposit and 75 kilometres from BHP Billiton's Olympic Dam mine.

  In its role as manager of the joint venture, Argonaut's wholly owned subsidiary, Kelaray Pty Ltd, is working to secure access to the tenement for the purpose of a planned seven-hole drilling program targeting areas which have been geophysically modelled as having the physical properties of large iron oxide-copper-gold deposits.

  
  

  Argonaut Resources NL | QUARTERLY REPORT | For the period ending 31 December 2015 3

  Native Title Determination

  During the Quarter, the Lake Torrens Overlap Proceeding commenced in the Federal Court of Australia. This proceeding will determine which of three native title claimant groups (if any) are entitled to native title rights in the area of Lake Torrens and Andamooka Island.

  Argonaut management is pleased by the thorough anthropological investigations that have been brought about by this matter. Such investigations, together with the oral evidence of senior aboriginal representatives, given both 'on-country' and in the courtroom, provides a proper foundation for an equitable native title outcome.

  After a long period of competing native title claims and inter-group conflict, the judgement in this matter will clarify the native title situation for the purpose of access negotiations.

  
  

  Litigation

  The Company previously announced that the Full Court of the Supreme Court of South Australia had set aside the decision of 14 January 2011 by the Environment, Resource and Development Court of South Australia (the ERD Court) that Mining Operations (exploration) may not be conducted on EL5614.

  A date for the ERD Court retrial has not been set. It is important to note that in overturning the original decision, the Full Court provided considerable guidance for the purpose of an ERD Court retrial including disallowing the original ERD Court Judge from re-hearing the matter.

  The Federal Court proceeding mentioned may eliminate the need for an ERD Court retrial.

  The Torrens Joint Venture partners remain open to a negotiated settlement with regard to land access for the purposes of proposed drilling activities on Andamooka Island and Lake Torrens.

  
  

  Kroombit, Queensland (Argonaut 100%)

  An application for a Mineral Development Licence over the area required to develop the Kroombit zinc-copper deposit has been lodged with the Queensland Government. No field based work was undertaken during the Quarter.

  
  

  Background

  Argonaut holds a 100% interest in the Kroombit zinc-copper deposit in Central Queensland via its interest in ML5631 and EPM15705. Mining on ML5631 is subject to a 2% net smelter royalty, payable to Aeris Resources Ltd.

  On 11 June 2009 Argonaut announced a maiden resource estimation for the Kroombit deposit. The Indicated and Inferred Resources at Kroombit comprise:

  • a Zinc Resource of 5.2 million tonnes at 1.9% zinc and 0.15% copper using a cut-off of 1.0% Zn, for 98,800 tonnes of zinc and 7,800 tonnes of copper; and

  • a Copper Resource of 0.9 million tonnes at 1.0% copper at a cut-off of 0.5% Cu for 9,000 tonnes of copper. In addition, Exploration Results are reported comprising a defined Exploration Potential of between:

  • 1 million and 1.5 million tonnes at 1.5% to 2.0% zinc, and between

  • 0.5 million and 1 million tonnes at 0.7% to 1.3% copper.

Aroona, South Australia (Argonaut 100%)

EL4358 and EL5336, Aroona, are subject to a joint venture agreement with Perilya Limited. No field based work was undertaken at Aroona during the Quarter.

Strategy

Argonaut has adapted its exploration strategy to suit prevailing market conditions. The main aspects of the Company's strategy are:

9 Continue to progress exploration projects under agreements with farm-in partners which off-set or minimise direct exploration expenditure.

9 Capitalise on current low asset valuations by seeking to secure additional high quality exploration projects, capable of delivering immediate exploration results and share price uplift as markets recover.

9 Focus on Central Africa and Australia where the Company has demonstrated operating capacity.

9 Preserve cash and lower company overheads by minimising costs.

4 Argonaut Resources NL | QUARTERLY REPORT | For the period ending 31 December 2015